UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA

ORAL ARGUMENT NOT YET SCHEDULED

Case No. 11-5317

UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT

MBIA INSURANCE CORPORATION,

Plaintiff-Appellant,

v.

FEDERAL DEPOSIT INSURANCE CORPORATION,

Defendant-Appellee.

On Appeal From the United States District Court For The District of Columbia

09-CV-01011-ABJ

BRIEF FOR APPELLANT

David F. Williams Geoffrey Gettinger CADWALADER, WICKERSHAM & TAFT, LLP 700 Sixth Street, N.W. Washington, D.C. 20001 Tel: (202) 862-2200 Fax: (202) 862-2400

Howard R. Hawkins, Jr. Jason Jurgens* CADWALADER, WICKERSHAM & TAFT, LLP One World Financial Center New York, New York 10281 Tel: (212) 504-6000 Fax: (212) 506-6666

* Admission Pending

Attorneys for Plaintiff-Appellant MBIA Insurance Corporation

USCA Case #11-5317 Document #1377012 Filed: 06/04/2012 Page 1 of 124

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CERTIFICATE AS TO PARTIES, RULINGS, AND RELATED CASES

Pursuant to Circuit Rule 28(a)(1), appellant MBIA Insurance

Corporation (“MBIA”) hereby certifies the following:

Parties and Amici

1. Parties Appearing Before District Court: MBIA appeared as

plaintiff before the district court. The Federal Deposit Insurance Corporation

(“FDIC”) appeared as defendant in its corporate capacity, and as conservator and

receiver for IndyMac Federal Bank, F.S.B. (“IndyMac Federal”). No amici or

intervenors appeared before the district court.

2. Parties Appearing Before This Court: MBIA appears as

appellant before this Court. The FDIC has appeared as appellee in its corporate

capacity, and as conservator and receiver for IndyMac Federal. To date, no amici

or intervenors have appeared before this Court in connection with this appeal.

Rulings Under Review

MBIA appeals from the Order issued by District Court Judge Amy

Berman Jackson, dated October 6, 2011 (the “Order”), and the accompanying

Memorandum Opinion, dated October 6, 2011, which granted the FDIC’s motions

to dismiss MBIA’s Amended Complaint (the “Ruling”). A copy of the Order can

be found in the Joint Appendix at __, and a copy of the Ruling can be found in the


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Joint Appendix at ___. The Ruling is reported at 816 F. Supp. 2d 81 (D.D.C.

2011).

Related Cases

This case was not previously before this Court or any court other than

the district court. A related case, Deutsche Bank Nat’l Trust Co. v. FDIC, 784 F.

Supp. 2d 1142 (C.D. Cal. 2011), appeal pending, No. 11-56339 (9th Cir.), involves

certain of the same transactions and parties.


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CORPORATE DISCLOSURE STATEMENT

Pursuant to Fed. R. App. P. 28(a)(1) and Circuit Rule 26.1, MBIA

hereby discloses that it is a wholly owned subsidiary of MBIA Inc., which is a

publicly held corporation listed on the New York Stock Exchange. MBIA is

incorporated and headquartered in New York. MBIA provides financial guarantee

insurance in connection with, among other things, residential mortgage-backed

securitizations.


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TABLE OF CONTENTS

PAGE

CERTIFICATE AS TO PARTIES, RULINGS, AND RELATED CASES .............. i

CORPORATE DISCLOSURE STATEMENT ....................................................... iii

TABLE OF CONTENTS .......................................................................................... iv

TABLE OF AUTHORITIES ................................................................................. viii

GLOSSARY OF ABBREVIATIONS ....................................................................... 1

JURISDICTIONAL STATEMENT .......................................................................... 3

STATEMENT OF ISSUES PRESENTED FOR REVIEW ...................................... 4

STATEMENT OF THE CASE .................................................................................. 5

A. MBIA’s Amended Complaint ..................................................... 5

B. The District Court’s October 6 Opinion ..................................... 7

STATUTES AND REGULATIONS ......................................................................... 9

STATEMENT OF FACTS ...................................................................................... 10

A. The FDIC And Relevant Statutory Framework ........................ 10

1. FDIC As Conservator ..................................................... 12

2. FDIC As Receiver .......................................................... 13

3. FDIC Corporate .............................................................. 14

B. MBIA, IndyMac And The IndyMac Transactions ................... 15


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PAGE

C. IndyMac’s Post-Closing Contractual Obligations As Servicer And Seller Under The PSAs ....................................... 16

D. IndyMac’s Failure And The Creation Of IndyMac Federal ....................................................................................... 18

E. IndyMac Federal Assumes IndyMac’s Contractual Rights And Obligations Under The PSAs ............................................ 19

F. FDIC Conservator Breached Post-Closing Servicing Obligations ................................................................................ 20

G. FDIC Conservator Breached Post-Closing Seller Obligations ................................................................................ 21

H. FDIC Conservator Continued To Partially Perform And Collect Millions In Servicing Fees ........................................... 22

I. The Sale Of IndyMac Federal’s Assets .................................... 23

J. MBIA’s Proofs Of Claim .......................................................... 25

K. The FDIC’s No Value Determination ....................................... 25

SUMMARY OF ARGUMENT ............................................................................... 26

STANDARD OF REVIEW ..................................................................................... 31

ARGUMENT ........................................................................................................... 31

POINT I MBIA’S CLAIMS ARE NOT PRUDENTIALLY MOOT ................ 32

A. MBIA’s Claims Constitute “Administrative Expenses” Entitled To Priority ................................................................... 33


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PAGE

B. The District Court Erred In Concluding That FDIC Conservator Did Not “Approve” The PSAs ............................. 37

1. “Approved” As Used In 12 U.S.C. § 1821(d)(20) Means To Have Consented, Agreed Or Ratified ............ 37

2. The Formal Approval Process Envisioned By The District Court Is Not Found In Either The Statute Or The FDIC’s Regulations ............................................ 40

3. The District Court Ignored MBIA’s Allegations That FDIC Conservator “Approved” The PSAs ............ 42

C. Treating Liability Arising From FDIC Conservator’s Breach Of Contracts As Administrative Expenses Is Consistent With Section 1821(e)(7)(B) .................................... 45

D. Congress’s Inclusion Of A Repudiation Process In FIRREA Confirms That MBIA’s Interpretation Of Section 1821(d)(20) Is Correct ................................................. 46

E. Public Policy Requires Liability Arising From FDIC Conservator’s Breaches To Be Treated As Administrative Expenses .......................................................... 50

F. Treating Liability Arising From FDIC Conservator’s Breaches As Administrative Expenses Is Consistent With The Bankruptcy Code ............................................................... 52

G. MBIA’s Interpretation Of Section 1821(d)(20) Is Consistent With Legislative History ......................................... 55

H. MBIA’s Interpretation Of Section 1821(d)(20) Is Consistent With The FDIC’s Regulations ................................ 56


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PAGE

POINT II THE RESOLUTION OF A NEW BANK, LIKE INDYMAC FEDERAL, SHOULD NOT RESULT IN A NO VALUE DETERMINATION THAT AVOIDS BREACH OF CONTRACT CLAIMS ON PRUDENTIAL MOOTNESS GROUNDS .......................................................................................... 59

POINT III MBIA’S CLAIMS AGAINST FDIC CORPORATE ARE NOT BARRED BY SECTION 1821(d)(10)(B) .......................................... 63

POINT IV MBIA’S CLAIMS FOR DECLARATORY AND INJUNCTIVE RELIEF ARE NOT BARRED BY SECTION 1821(j) ................................................................................................. 65

CONCLUSION ........................................................................................................ 69

CERTIFICATE OF COMPLIANCE ....................................................................... 71

CERTIFICATE OF SERVICE ................................................................................ 72


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TABLE OF AUTHORITIES

PAGE(S)

CASES:

Adams v. Resolution Trust Corp., 927 F.2d 348 (8th Cir. 1991) .............................................................................. 64

Adelphia Bus. Solutions, Inc. v. Abnos, 482 F.3d 602 (2d Cir. 2007) ............................................................................... 53

Ashcroft v. Iqbal, 556 U.S. 662 (2009) ............................................................................................ 31

Bank of New York v. FDIC, 508 F.3d 1 (D.C. Cir. 2007) ................................................................................ 38

Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) ............................................................................................ 31

Cabell v. Markham, 148 F.2d 737 (2d Cir.), aff’d, 326 U.S. 404 (1945) ........................................................................................... 38

Chamber of Commerce v. United States Dep’t of Energy, 627 F.2d 289 (D.C. Cir. 1980) ............................................................................ 32

City of Covington v. Covington Landing L.P., 71 F.3d 1221 (6th Cir. 1995) .............................................................................. 53

Deutsche Bank Nat’l Trust Co. v. FDIC, 784 F. Supp. 2d 1142 (C.D. Cal. 2011) ........................................................ 19, 68

Authorities upon which we chiefly rely are marked with asterisks.


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PAGE(S)

Doe v. Metropolitan Police Dep’t, 445 F.3d 460 (D.C. Cir. 2006) ............................................................................ 31

Doe v. United States, 372 F.3d 1347 (Fed. Cir. 2004) .......................................................................... 38

FDIC v. Phoenix Casa Del Sol, LLC, No. CV 09–2556–PHX–MHM, 2011 WL 814858 (D. Ariz. Mar. 3, 2011) ....................................................................................... 56

First Hartford Partners II v. FDIC, No. 93 Civ. 0933, 1993 U.S. Dist. LEXIS 14651 (S.D.N.Y. Oct. 15, 1993) .................................................................................... 67

Foretich v. United States, 351 F.3d 1198 (D.C. Cir. 2003) .......................................................................... 32

Franklin Fin. v. Resolution Trust Corp., 53 F.3d 268 (9th Cir. 1995) ................................................................................ 52

In re GM Corp., 407 B.R. 463 (Bankr. S.D.N.Y. 2009), aff’d sub nom. In re Motors Liquidation Co., 428 B.R. 43 (S.D.N.Y. 2010) ....................... 54-55

Henry v. FDIC, 695 F. Supp. 2d 1063 (C.D. Cal. 2010) .............................................................. 64

Janowsky v. United States, 133 F.3d 888 (Fed. Cir. 1998) ............................................................................ 36

Johnson v. Jamaica Hosp., 467 N.E.2d 502 (N.Y. 1984) ............................................................................... 49

Kenford Co., Inc. v. Erie Cty., 493 N.E.2d 234 (N.Y. 1986) ............................................................................... 49


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PAGE(S)

Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375 (1994) ............................................................................................ 31

In re Kollel Mateh Efraim, LLC, 456 B.R. 185 (S.D.N.Y. 2011) ........................................................................... 54

Laurel Baye Healthcare of Lake Lanier, Inc. v. NLRB, 564 F.3d 469 (D.C. Cir. 2009) ............................................................................ 41

MBIA Ins. Corp. v. F.D.I.C., 816 F. Supp. 2d 81 (D.D.C. 2011) ................ 7, 18, 22, 32, 34, 37, 40, 41, 43, 44, ...................................................................... 46, 48, 51, 52, 54, 56, 61, 62, 63, 64

National Ctr. for Mfg. Scis. v. Department of Defense, 199 F.3d 507 (D.C. Cir. 2000) ............................................................................ 41

National Trust for Historic Pres. v. FDIC, 995 F.2d 238, vacated, 5 F.3d 567 (D.C. Cir. 1993), reinstated in relevant part, 21 F.3d 469 (D.C. Cir. 1994) ....................................................... 66

In re New Valley Corp., 168 B.R. 82 (Bankr. D.N.J. 1994) .......................................................... 12-13, 50

New York Univ. v. Continental Ins. Co., 662 N.E.2d 763 (N.Y. 1995) ............................................................................... 49

Office & Prof’l Employees Int’l Union, Local 2 v. FDIC, 27 F.3d 598 (D.C. Cir. 1994) .............................................................................. 52

In re Old Carco LLC, No. 10 Civ. 8283, 2012 WL 893614 (S.D.N.Y. Mar. 15, 2012) ........................ 54

In re Old Carco LLC, 424 B.R. 650 (Bankr. S.D.N.Y. 2010), aff’d, No. 10 Civ. 2800, 2010 WL 4455648 (S.D.N.Y. Nov. 2, 2010) .................. 53-54


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PAGE(S)

Olympic Towers Assocs. v. Goldome Bank, No. 92-cv-0267E, 1995 U.S. Dist. LEXIS 6028 (W.D.N.Y. Mar. 21, 1995) .................................................................................. 67

Rachmani Corp. v. 9 E. 96th St. Apt. Corp., 629 N.Y.S.2d 382 (N.Y. App. Div. 1995) .......................................................... 22

Russello v. United States, 464 U.S. 16 (1983) .............................................................................................. 39

Silverman v. United States, 679 F.2d 865 (Ct. Cl. 1982) ................................................................................ 36

Thompson v. Texas Mexican Ry. Co., 328 U.S. 134 (1946) ............................................................................................ 53

United States v. Gonzales, 520 U.S. 1 (1997) ................................................................................................ 55

United States v. Stewart, 311 U.S. 60 (1940) .............................................................................................. 46

Winder v. Erste, 566 F.3d 209 (D.C. Cir. 2009) ............................................................................ 31

Winston v. Mediafare Entm’t Corp., 777 F.2d 78 (2d Cir. 1985) ................................................................................. 36

WRH Mortg. Inc. v. S.A.S. Assocs., 214 F.3d 528 (4th Cir. 2000) .............................................................................. 12

STATUTES & OTHER AUTHORITIES:

12 U.S.C. § 1821(a) ............................................................................................................. 14 § 1821(d) ............................................................................................................. 11


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PAGE(S)

12 U.S.C. (cont.) § 1821(d)(2)(D) ............................................................................................. 12, 19 § 1821(d)(2)(E) ................................................................................................... 13 § 1821(d)(2)(H) ................................................................................................... 12 § 1821(d)(3-4) ..................................................................................................... 13 § 1821(d)(10) ...................................................................................................... 13 § 1821(d)(10)(A) ................................................................................................. 39 § 1821(d)(10)(B) ....................................................................................... 8, 30, 63 § 1821(d)(11) ................................................................................................ 27, 47 § 1821(d)(11)(A) .............................................................. 13-14, 25, 29-30, 33, 34 § 1821(d)(11)(A)(i) ............................................................................................. 33 § 1821(d)(20) ....................................................... 7, 14, 22, 28, 33, 37, 39, 47, 68 § 1821(e) ............................................................................................................. 42 § 1821(e)(2) ........................................................................................................ 67 § 1821(e)(1-3) ......................................................................................... 13, 20, 35 § 1821(e)(3)(A)(ii)(II) ......................................................................................... 68 § 1821(e)(7)(B) ....................................................................................... 13, 45, 46 § 1821(e)(7)(B)(ii) ........................................................................................ 45, 51 § 1821(e)(9)(A) ................................................................................................... 13 § 1821(e)(13) ...................................................................................................... 34 § 1821(f) .............................................................................................................. 14 § 1821(i)(2) ................................................................................................... 61, 63 § 1821(j) ................................................................................................................ 8 § 1821(m)(13) ........................................................................................... 8, 15, 60 § 1821(m)(11)(A) ......................................................................................... 14-15 § 1821(m)(11)(B) ................................................................................................ 15 § 1821(m)(18) ..................................................................................................... 62 § 1821(n)(1)(C) ................................................................................................... 39

12 C.F.R. § 360.4 ......................................................................................... 56, 57, 58

60 Fed. Reg. at 35487 .............................................................................................. 58

H.R. Conf. Rep. No. 103-213, reprinted in 1993 U.S.C.C.A.N. 1088 (Aug. 4, 1993) ............................................................................................... 48, 55


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PAGE(S)

S. Rep. No. 101-19, 101st Cong., 1st Sess. (Apr. 13, 1989) ....................... 48, 52-53

1 Alan N. Resnick & Henry J. Sommer, Collier Bankruptcy Manual ¶ 503.06[5][b] (3d ed. rev. 2012) ......................... 53

2A Norman J. Singer & J.D. Singer, Sutherland Statutes and Statutory Construction 46:6 (7th ed. 2007) ................. 41

Random House Webster’s Unabridged Dict. 103 (2d ed. 1998) ............................. 38

Webster’s New Universal Unabridged Dict. 92 (2d ed. 1983) ................................ 38

http://www.fdic.gov/about/learn/symbol/index.html (last visited on June 1, 2012) ................................................................................................................... 11

http://www.fdic.gov/news/news/press/2009/pr09042.html (last visited June 1, 2012) ............................................................................................................... 23

http://www2.fdic.gov/divweb/Dividendindex.asp. (last visited June 1, 2012) ............................................................................. 24, 64


GLOSSARY OF ABBREVIATIONS

APA The Administrative Procedure Act codified at 5 U.S.C. § 701 et seq.

FDIC Federal Deposit Insurance Corporation

FDIC Corporate Appellee FDIC, acting in its corporate capacity

FDIC Conservator Appellee FDIC, acting as conservator for IndyMac Federal

Old IndyMac Receiver FDIC, acting as receiver for IndyMac

FDIC Receiver Appellee FDIC, acting as receiver for IndyMac Federal

FIRREA Financial Institutions Reform, Recovery, and Enforcement Act of 1989

IndyMac IndyMac Bank, F.S.B.

IndyMac Federal IndyMac Federal Bank, F.S.B.

IndyMac Transactions The three residential mortgage-backed securitization transactions at issue on this appeal referred to in the Amended Complaint as INDS 2006-H4, INDS 2007-1 and INDS 2007-2

MBIA Appellant MBIA Insurance Corporation


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No Value Determination The November 12, 2009 resolution issued by the FDIC’s Board of Directors, determining that in each IndyMac receivership, “[i]nsufficient assets exist to make any distribution on general unsecured claims . . . and therefore all such claims, asserted or unasserted, will recover nothing and have no value.”

OTS Office of Thrift Supervision

PAA The Amended and Restated Insured Deposit Purchase and Assumption Agreement, dated as of July 11, 2008, executed by Old IndyMac Receiver, FDIC Corporate and FDIC Conservator, on behalf of IndyMac Federal, pursuant to which the PSAs were assumed

Policies The financial guaranty insurance policies provided by MBIA pursuant to insurance agreements entered by MBIA and IndyMac in connection with the IndyMac Transactions

PSAs The Pooling and Servicing Agreements related to the INDS 2007-1 and INDS 2007-2 Transactions, as well as the Purchase Agreement and the Sale and Servicing Agreement related to the INDS 2006-H4 Transaction, which FDIC Conservator assumed pursuant to the PAA

QFCs Qualified Financial Contracts, as defined by 12 U.S.C. § 1821(e)(8)(D)(i)


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JURISDICTIONAL STATEMENT

Pursuant to Fed. R. App. P. 28(a)(4) and Circuit Rule 28(a)(4), MBIA

states the following:

1. The APA provides the basis for the district court’s subject

matter jurisdiction.

2. This Court has jurisdiction over this appeal pursuant to 28

U.S.C. § 1291.

3. MBIA filed a timely notice of appeal on November 4, 2011.

4. This appeal is from a final order and judgment, which disposed

of all of the parties’ claims.


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STATEMENT OF ISSUES PRESENTED FOR REVIEW

1. Whether the district court committed reversible error when it

dismissed MBIA’s breach of contract claims as prudentially moot after concluding

that the FDIC’s liability, arising from contracts breached after FDIC Conservator

expressly assumed them and while FDIC Conservator profited from them, did not

constitute “administrative expenses” under 12 U.S.C. § 1821(d)(11)(A) because

the contracts were not “approved” as contemplated by 12 U.S.C. § 1821(d)(20).


dismissed MBIA’s claims as prudentially moot, despite the fact that pursuant to 12

U.S.C. § 1821(m)(11)-(13), FDIC Corporate had (but did not fulfill) a statutory

obligation to furnish funds to IndyMac Federal to cover its losses, including its

liability to MBIA.


held that MBIA’s claims against FDIC Corporate were barred by 12 U.S.C. §

1821(d)(10)(B) because FDIC had paid itself a “dividend” when, in fact, the only

dividend paid in connection with the FDIC’s resolution of IndyMac and IndyMac

Federal was to uninsured depositors.


concluded that 12 U.S.C. § 1821(j) bars MBIA’s claims seeking declaratory and

injunctive relief.


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STATEMENT OF THE CASE

This action arises from the FDIC’s conduct in connection with the

resolution of the IndyMac estate through a new federally chartered bank, IndyMac

Federal. In the wake of IndyMac’s collapse, the FDIC created IndyMac Federal

and caused it to assume various contracts to which IndyMac had been a party,

including the three PSAs, which are the basis for MBIA’s claims here. Between

July 2008 and March 2009 the FDIC, as conservator of IndyMac Federal, breached

its seller-and-servicer obligations under the PSAs, causing damages to MBIA.

Because 12 U.S.C. § 1821(d)(20) required the FDIC’s liability for its breaches of

the PSAs to be treated as “administrative expenses,” MBIA sought to recover its

losses as such on a priority basis in accordance with 12 U.S.C.§ 1821(d)(11). The

FDIC refused to honor MBIA’s proofs of claim, ultimately declaring them

worthless.

A. MBIA’s Amended Complaint

On February 8, 2010, MBIA filed its Amended Complaint in the

United States District Court for the District of Columbia.1 The Amended

Complaint asserted eight claims against the FDIC as conservator and receiver for

1 MBIA filed the Amended Complaint in the wake of the No Value Determination (discussed infra), dropping original claims MBIA had asserted against Old IndyMac Receiver that had been predicated on contractual breaches that occurred prior to IndyMac’s failure.


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IndyMac Federal, including claims for breach of contract and breach of the implied

duty of good faith and fair dealing.2 Am. Compl. ¶¶ 89-210 (JA_). These claims

arise out of contractual breaches that occurred after the FDIC formed IndyMac

Federal and placed it into conservatorship, and while FDIC Conservator continued

to pay itself millions of dollars in fees pursuant to the contracts it was breaching.

MBIA alleged that FDIC Conservator’s liability to MBIA constituted

“administrative expenses of the [IndyMac Federal] receiver,” to be paid on a

priority basis pursuant to section 1821(d)(11)(A). Specifically, MBIA alleged that

liability arising from FDIC Conservator’s breach of the three PSAs constituted

“administrative expenses” because those agreements were “approved” by FDIC

Conservator as contemplated by section 1821(d)(20). Am. Compl. ¶ 4 (JA_).

MBIA also asserted claims under the APA against FDIC Corporate

based on (a) the No Value Determination made by the FDIC Board of Directors,

which deemed MBIA’s claims worthless general creditor claims, even though

MBIA had filed administrative expense claims; and (b) FDIC Corporate’s

wrongful receipt of IndyMac Federal assets.

2 MBIA also asserted claims for declaratory judgment and statutory damages arising from the FDIC’s purported repudiation of contracts related to one of the IndyMac Transactions.


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B. The District Court’s October 6 Opinion

On May 21, 2010, the FDIC moved to dismiss MBIA’s Amended

Complaint. (JA_). On September 27, 2011, the district court held oral argument.

(JA_). On October 6, 2011, the district court granted the FDIC’s motions,

dismissing MBIA’s damages claims as prudentially moot, and otherwise holding

that MBIA failed to state a claim. The district court concluded that, as a matter of

law, MBIA’s claims did not constitute “administrative expenses” of FDIC

Receiver, but were instead general creditor claims rendered worthless by the No

Value Determination. MBIA Ins. Corp. v. FDIC, 816 F. Supp. 2d 81, 100 (D.D.C.

2011).

The district court’s legal analysis hinged on its erroneous construction

of section 1821(d)(20), which provides, in relevant part:

Notwithstanding any other provision of this subsection, any final and unappealable judgment for monetary damages entered against a receiver or conservator for an insured depository institution for the breach of an agreement executed or approved by such receiver or conservator after the date of its appointment shall be paid as an administrative expense of the receiver or conservator.

12 U.S.C. § 1821(d)(20) (emphasis added).

The district court erroneously held that FDIC Conservator did not

“approve” the PSAs even though (1) the FDIC, in three separate capacities, had


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executed a formal 65-page “Purchase & Assumption Agreement” (the “PAA”)

whereby FDIC Conservator, on behalf of IndyMac Federal, expressly assumed the

PSAs; and (2) IndyMac Federal thereafter paid itself millions of dollars in

servicing fees for its partial performance of servicing obligations under the PSAs

before (3) selling two of the PSAs to One West.

The district court also held that 12 U.S.C. § 1821(m)(13), which

provides that FDIC Corporate “shall furnish to [a newly created insured bank, like

IndyMac Federal] additional funds in the amount of [its] losses,” was inapplicable

to MBIA’s claims. This too was error.

The district court also wrongly dismissed MBIA’s claims seeking

declaratory and injunctive relief as barred by 12 U.S.C. § 1821(j), and against

FDIC Corporate as barred by 12 U.S.C. § 1821(d)(10)(B).


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STATUTES AND REGULATIONS

Relevant statutes and regulations are reproduced in the Addendum to

this brief.


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STATEMENT OF FACTS

This appeal arises out of the district court’s dismissal of claims

brought by MBIA seeking, among other things, damages that it suffered as a result

of FDIC Conservator’s breaches of contracts that occurred between July 11, 2008

and March 19, 2009.

As alleged in the Amended Complaint, MBIA insured the

performance of mortgage loans sold by IndyMac into three securitizations. When

IndyMac failed, the FDIC placed its assets, including the PSAs, into a pass-through

receivership. The FDIC did not repudiate the PSAs. Rather, FDIC Conservator

expressly assumed them under the PAA after forming IndyMac Federal and

placing it into conservatorship. Pursuant to the PSAs, FDIC Conservator thereafter

paid itself millions of dollars in fees for servicing loans, albeit improperly in

breach of the PSAs. FDIC Conservator also breached its post-closing seller

obligations to repurchase defective loans. Ultimately, the FDIC misclassified

MBIA as a general creditor, while taking for itself the proceeds of the sale of

IndyMac Federal’s assets, including two of the breached PSAs.

A. The FDIC And Relevant Statutory Framework

The FDIC is an independent agency of the federal government created

in 1933 in response to bank failures during the Great Depression. The FDIC


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insures deposits held by banks and thrift institutions that it oversees, and that pay

for deposit insurance coverage. See http://www.fdic.gov/about/learn/symbol/

index.html (last visited on June 1, 2012). The FDIC receives no Congressional

appropriations; instead, it is funded primarily by premiums that banks and thrifts

(like IndyMac, before its collapse) pay for deposit insurance. Id.

The FDIC is the primary federal regulator of state-chartered banks

that do not join the Federal Reserve System. See http://www.fdic.gov/about/learn/

symbol/index.html (last visited on June 1, 2012). In addition, the FDIC is the

back-up supervisor for the remaining insured banks and thrift institutions. Id. To

protect insured depositors, the FDIC examines and supervises banks. Id. FDIC-

regulated institutions can be closed if they are deemed to be unsound and otherwise

unable to pay their obligations or meet their depositors’ demands. The FDIC often

supervises the resolution of the failed banking institutions. Id.

The FDIC has several options for resolving failed banking institutions.

See generally 12 U.S.C. § 1821. In particular, under FIRREA, the FDIC can

operate in various capacities: (1) as a conservator for the failed institution; (2) as a

receiver for the failed institution; and (3) in its corporate capacity. 12 U.S.C. §

1821(d).


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1. FDIC As Conservator

As a conservator, the FDIC’s mandate is to “take such action as may

be (i) necessary to put the insured depository institution in a sound and solvent

condition; and (ii) appropriate to carry on the business of the institution and

preserve and conserve the assets and property of the institution.” 12 U.S.C. §

1821(d)(2)(D). In other words, the FDIC, as conservator, is required to operate the

failed institution’s business in a manner that preserves and maximizes its value.

The FDIC, as conservator, is statutorily obligated to “pay all valid obligations of

the insured depository institution in accordance with the prescriptions and

limitations” in FIRREA. 12 U.S.C. § 1821(d)(2)(H).

When the FDIC is appointed conservator, it can take one of two

actions with respect to the pre-conservatorship contracts of a failed institution: (1)

it may repudiate contracts consistent with its powers under section 1821(e)(1-3) or

(2) elect not to repudiate a contract. Repudiation of a contract relieves both the

FDIC and its counterparties from any future obligations, and unpaid amounts due

to counterparties on repudiated contracts become general creditor claims.3

In exercising these powers the FDIC must repudiate or enforce the

contract in its entirety, and is not authorized to accept the benefits of an agreement

while repudiating its burdens. See In re New Valley Corp., 168 B.R. 82, 90

3 See WRH Mortg. Inc. v. S.A.S. Assocs., 214 F.3d 528, 532 (4th Cir. 2000).


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(Bankr. D.N.J. 1994) (“the FDIC cannot seek to enforce one part of the agreement

and simultaneously seek to bar another part of the same agreement”); 12 U.S.C. §

1821(e)(9)(A) (prohibiting the FDIC from severing out portions of QFCs); cf. 12

U.S.C. § 1821(e)(7)(B) (requiring FDIC conservator to pay for services performed

by counterparties when services accepted).

2. FDIC As Receiver

As receiver, the FDIC’s statutory mandate is to “place the insured

depository institution in liquidation and proceed to realize upon the assets of the

institution, having due regard to the conditions of credit in the locality.” 12 U.S.C.

§ 1821(d)(2)(E). An FDIC receiver may repudiate contracts upon its appointment.

12 U.S.C. § 1821(e)(1-3).

An FDIC receiver also is authorized to establish a claims process to

resolve creditor claims, 12 U.S.C. § 1821(d)(3-4), and pay creditor claims and

dividends on proved claims. See 12 U.S.C. § 1821(d)(10).

Section 1821(d)(11) requires, in relevant part, that:

[A]mounts realized from the liquidation or other resolution of any insured depository institution by any receiver appointed for such institution shall be distributed to pay claims (other than secured claims to the extent of any such security) in the following order of priority:

(i) Administrative expenses of the receiver.


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(ii) Any deposit liability of the institution.

(iii) Any other general or senior liability of the institution (which is not a liability described in clause (iv) or (v)).

12 U.S.C. § 1821(d)(11)(A).

Among the “administrative expenses” to be paid on a priority basis

are liabilities arising from “the breach of an agreement executed or approved by

[the FDIC as] receiver or conservator after the date of its appointment.” 12 U.S.C.

§ 1821(d)(20) (emphasis added).

3. FDIC Corporate

The FDIC in its corporate capacity has the primary obligation to

provide deposit insurance, i.e., insure any shortfall between (a) amounts realized

from the resolution of a failed institution, and (b) the failed institution’s obligations

to depositors. See 12 U.S.C. §§ 1821(a), 1821(f).

The FDIC may also organize a new national bank in accordance with

section 1821(m) to assume the assets of the failed institution, as it did when it

formed IndyMac Federal. FDIC Corporate is obligated to fund new national banks

that it organizes pursuant to section 1821(m)(11-13). Specifically, “[u]pon the

organization of a new bank, the Corporation shall promptly make available to it an

amount equal to the estimated insured deposits of such bank in default plus the

estimated amount of the expenses of operating the new bank. . . .” 12 U.S.C. §


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1821(m)(11)(A).4 If its initial estimates are incorrect, FDIC Corporate is obligated

to adjust the amount of funding it provides to the new bank. 12 U.S.C. §

1821(m)(11)(B). FDIC Corporate also has a statutory obligation to fund any losses

suffered by the new bank in connection with operating its business. 12 U.S.C. §

1821(m)(13).

B. MBIA, IndyMac And The IndyMac Transactions

MBIA is a New York insurance corporation engaged in the business

of issuing financial guaranty insurance policies in connection with, among other

things, residential mortgage-backed securitizations, such as those at issue here

sponsored by IndyMac. Am. Comp. ¶¶ 15, 29 (JA_).

Prior to its insolvency in July 2008, IndyMac was an FDIC-insured

depository institution that, in addition to collecting traditional deposits, originated

and acquired residential mortgage loans. Am. Comp. ¶ 23 (JA_). IndyMac sold

those mortgage loans into securitizations. Am. Comp. ¶ 31 (JA_).

Starting in September 2006, IndyMac contracted with MBIA to

provide financial guaranty insurance policies (each, a “Policy” and, collectively,

the “Policies”) with respect to the three IndyMac Transactions. Am. Comp. ¶ 32

4 This appeal arises from events that occurred in 2008 and 2009, since which time certain provisions of section 1821 have been amended. All citations and analysis herein concern the statutory language in effect on July 11, 2008.


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(JA_). The Policies guarantee that investors who purchased securities in the

IndyMac Transactions would continue to receive the cash flows that IndyMac had

promised, even if the loans backing the securities failed to perform. Am. Comp. ¶¶

3, 29, 66 (JA_).

C. IndyMac’s Post-Closing Contractual Obligations As Servicer And Seller Under The PSAs

In connection with each IndyMac Transaction, IndyMac had

continuing contractual obligations as both the seller and the servicer of the

mortgage loans. These post-closing contractual obligations were set forth in the

PSAs. Am. Compl. ¶ 40 (JA_). MBIA is an express third-party beneficiary under

the PSAs. Id.

In connection with the IndyMac Transactions, IndyMac agreed to

service the mortgage loans that it securitized. Am. Compl. ¶¶ 5, 41 (JA_). That is

to say, IndyMac agreed to collect principal and interest payments from borrowers,

and provide other collection services in the event that borrowers were delinquent

or defaulted on their mortgage obligations. Am. Compl. ¶¶ 28, 54-56, 98-99, 102-

03 (JA_). These servicing rights allowed IndyMac to earn substantial servicing

fees. Am. Comp. ¶¶ 5, 57, 62 (JA_). Importantly, pursuant to the PSAs, IndyMac,


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as servicer, paid itself servicing fees from mortgage-loan proceeds it collected each

month. See, e.g., INDS 2007-1 PSA §§ 3.09(a)(i), 3.15 (JA_).5

In exchange for these substantial servicing fees, IndyMac was

supposed to (1) collect mortgage payments, (2) determine whether a mortgage loan

was in default, (3) interact with borrowers to maximize recoveries and (4) remit

proceeds from the mortgage loans to the trusts for the IndyMac Transactions (net

of its servicing fees). Am. Comp. ¶¶ 55-56 (JA_). IndyMac, as servicer, also

undertook to determine if defaulted mortgage loans were likely to generate further

cash flows and, if not, whether such mortgage loans should be “charged-off” (that

is, have the value written down to zero). Am. Comp. ¶¶ 28, 98-99 (JA_).

In addition to its post-closing obligations as servicer, IndyMac also

had continuing obligations as the seller of the securitized mortgage loans.

Specifically, when each IndyMac Transaction closed, IndyMac, as seller, made

representations and warranties in the PSAs concerning the characteristics of the

mortgage loans. Am. Comp. ¶¶ 30, 39-41 (JA_). Pursuant to the PSAs, if any

given securitized mortgage loan evidenced a breach of the seller’s representations

and warranties, the seller had a post-closing obligation to repurchase (or provide a

substitute for) that mortgage loan. Am. Comp. ¶¶ 52, 58 (JA_).

5 The INDS 2007-1 PSA is representative of the operative terms included in the INDS 2006-H4 and INDS 2007-2 PSAs.


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Specifically, pursuant to the PSAs, the seller was contractually

obligated to participate in a Put Back Process. See, e.g., INDS 2007-1 PSA § 2.03

(JA_). MBIA had the right to bring the non-compliant mortgage loans to the

seller’s attention at any time. Am. Comp. ¶¶ 59, 114, 116 (JA_). The seller had 90

days to cure a breach. Am. Comp. ¶¶ 59, 114 (JA_). If the seller failed to cure the

breach in 90 days, it was required to repurchase the non-compliant mortgage loan.

Am. Comp. ¶¶ 59, 114 (JA_).

D. IndyMac’s Failure And The Creation Of IndyMac Federal

On July 11, 2008, OTS announced that IndyMac had failed. Am.

Comp. ¶ 46 (JA_). OTS appointed the FDIC as receiver of IndyMac, thus

beginning IndyMac’s resolution. Am. Comp. ¶ 46 (JA_).

The FDIC undertook a “pass-through receivership” strategy. Am.

Comp. ¶¶ 47-48 (JA_). “In a pass-through receivership, all deposits, substantially

all assets, and certain non-deposit liabilities of the original institution instantly

‘pass[] through the receiver’ to a newly chartered federal mutual association,

subsequently known as the conservatorship.” MBIA, 816 F. Supp. 2d at 85. To

effectuate the pass-through receivership, the FDIC immediately chartered IndyMac

Federal, a new bank established in accordance with section 1821(m). IndyMac

Federal, in turn, was contemporaneously placed under the conservatorship of the

FDIC.


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E. IndyMac Federal Assumes IndyMac’s Contractual Rights And Obligations Under The PSAs

Upon being appointed, FDIC Conservator entered into the PAA. Am.

Comp. ¶ 48 (JA_). The PAA was a formal 65-page legal document, signed by the

FDIC in all three of its capacities, and signed by FDIC Conservator on behalf of

IndyMac Federal. Pursuant to the PAA, FDIC Conservator expressly assumed

IndyMac’s (1) “duties and obligations under any contract to which [IndyMac]

provides mortgage servicing for others,” (2) “Qualified Financial Contracts” and

(3) “mortgage servicing rights and related contracts.” Am. Comp. ¶¶ 48-51 (JA_);

PAA at §§ 2.1(j), (k) (JA_).

The PSAs were among the contracts assumed under the PAA. As a

result, IndyMac Federal was entitled to the benefits of the PSAs, and assumed the

corresponding post-closing obligations to act as seller and servicer with respect to

the IndyMac Transactions. Am. Comp. ¶¶ 49-50, 52-59 (JA_); see also Tr. of Oral

Argument (Sept. 27, 2011) at 24:22-23 (JA_); Deutsche Bank Nat’l Trust Co. v.

FDIC, 784 F. Supp. 2d 1142, 1154 (C.D. Cal. 2011).

By expressly assuming the financial benefits and undertaking the

post-closing seller-and-servicer obligations under the PSAs, the FDIC was carrying

out its statutory mandate to “preserve and conserve” IndyMac’s assets and property

for eventual sale. See 12 U.S.C. 1821(d)(2)(D); Am. Comp. ¶ 62 (JA_). Indeed, in


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the eight-month period of its conservatorship, IndyMac Federal earned $3.3

million in servicing fees under the PSAs alone. Am. Comp. ¶ 62 (JA_).

Importantly, FDIC Conservator could have repudiated the PSAs (as

could the Old IndyMac Receiver). See 12 U.S.C. § 1821(e)(1-3). Had the FDIC

done so, IndyMac Federal would not have been able to collect millions of dollars

in servicing fees. On being appointed, FDIC Conservator chose not to repudiate

the PSAs. Am. Compl. ¶ 4, 51, 60 (JA_). In fact, FDIC Conservator never

repudiated two of the three PSAs, and as to the third, only attempted an untimely

repudiation in March 2009.6 Ultimately, the FDIC sold two of the PSAs and

corresponding servicing rights to OneWest at a substantial profit.

F. FDIC Conservator Breached Post-Closing Servicing Obligations

Despite executing the PAA, and deliberately undertaking to perform

the post-closing duties of servicer under the PSAs, FDIC Conservator only

partially and improperly performed its contractual servicing obligations. Am.

Comp. ¶¶ 61 (JA_). For example, FDIC Conservator did not diligently contact

borrowers and ensure their compliance with their payment obligations. FDIC

Conservator also improperly charged-off mortgage loans, thus causing more

insurance claims to be submitted to MBIA. Am. Comp. ¶ 61 (JA_). Finally, FDIC

6 In Claim VII of its Amended Complaint, MBIA alleges that this repudiation was ultra vires. Am. Compl. ¶¶ 194-202 (JA_).


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Conservator converted for its own benefit servicing proceeds that were owed to the

trusts for the IndyMac Transactions. Am. Comp. ¶ 103 (JA_). FDIC

Conservator’s breaches of its servicing obligations under the PSAs caused

increased delinquencies and harm to MBIA. Am. Comp. ¶¶ 104-05 (JA_).

G. FDIC Conservator Breached Post-Closing Seller Obligations

FDIC Conservator also breached the post-closing seller obligations

that it assumed as part of the PSAs. In particular, as successor to IndyMac, i.e., the

seller for the IndyMac Transactions, FDIC Conservator expressly assumed the

seller’s post-closing obligation to continue to engage in the Put Back Process

described above. Am. Comp. ¶¶ 58-59, 114 (JA_). Again, Old IndyMac Receiver

could have repudiated the PSAs before executing the PAA, and FDIC Conservator

could have promptly repudiated the PSAs after executing the PAA. But the FDIC

elected not to do so, thereby accepting responsibility for IndyMac’s post-closing

seller obligations.

In breach of its post-closing seller obligations, FDIC Conservator

refused to engage in the Put Back Process. Specifically, before FDIC Conservator

assumed the PSAs, MBIA had submitted repurchase demands to IndyMac on May

23, 2008. IndyMac’s time to respond (i.e., 90 days) had not yet expired when

FDIC Conservator entered the PAA. By assuming the PSAs, FDIC Conservator


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was obligated to honor MBIA’s outstanding repurchase demands.7 It failed to do

so. Separate and apart from that, FDIC Conservator refused to respond to

additional repurchase demands that MBIA made after FDIC Conservator assumed

the PSAs. Am. Comp. ¶¶ 63-64, 113 (JA_).

H. FDIC Conservator Continued To Partially Perform And Collect Millions In Servicing Fees

While breaching its servicer obligations, and refusing to honor its

post-closing seller obligations, FDIC Conservator continued to pay itself millions

of dollars in servicing fees. Am. Comp. ¶ 61-62 (JA_). Specifically, from July 11,

2008 through March 19, 2009, FDIC Conservator paid itself over $3.3 million in

servicing fees for the IndyMac Transactions from the mortgage-loan proceeds it

collected on a monthly basis from borrowers. Am. Comp. ¶ 62 (JA_). FDIC

Conservator’s decision to pay itself these fees and partially perform its servicing

obligations further demonstrates that the PSAs were “approved” by FDIC

Conservator as contemplated by section 1821(d)(20). So too does FDIC

7 As the district court correctly noted, MBIA’s claim based on a breach of the post-closing seller obligations did not become actionable until the 90-day cure-period expired. 816 F. Supp. 2d at 88 n.8. Thus, despite the district court’s doubts (id. at 88 n.9), MBIA clearly alleged a breach of contract that occurred in August 2008. The district court’s attempt to distinguish between the timing of the breach and the remedy cannot be reconciled with New York law. See Rachmani Corp. v. 9 E. 96th St. Apt. Corp., 629 N.Y.S.2d 382, 384 (N.Y. App. Div. 1995) (contract not breached until time for performance expires).


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Conservator’s use of its servicing rights to increase IndyMac Federal’s value in

advance of the eventual sale to OneWest. Am. Comp. ¶ 62 (JA_). Indeed, FDIC

Conservator assumed a $184 billion servicing portfolio for IndyMac Federal (JA

___), which allowed it to earn approximately $600 million in servicing fees during

FDIC Conservator’s eight-month tenure alone. This underscores just how critical

servicing rights were to the overall value of IndyMac Federal, which FDIC

Conservator was charged with preserving and maximizing.

I. The Sale Of IndyMac Federal’s Assets

On March 19, 2009, the FDIC completed the sale of IndyMac

Federal’s assets to OneWest. Am. Comp. ¶ 69 (JA_). According to the FDIC’s

contemporaneous account of the transaction: “As of January 31, 2009, IndyMac

Federal had total assets of $23.5 billion and total deposits of $6.4 billion. OneWest

has agreed to purchase all deposits and approximately $20.7 billion in assets at a

discount of $4.7 billion. The FDIC will retain the remaining assets for later

disposition.” http://www.fdic.gov/news/news/press/2009/pr09042.html (last

visited June 1, 2012).

On the same day, the FDIC purported to retroactively repudiate as of

July 2008 FDIC Conservator’s contractual obligations in connection with the

INDS 2007-1 securitization, one of the three securitizations at issue here. Am.

Comp. ¶ 72 (JA_). Notably, FDIC Conservator did not repudiate any contractual


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obligations with respect to the other two PSAs, choosing instead to monetize those

assets by selling the valuable servicing rights to OneWest.

In conjunction with the One West sale, the FDIC also appointed itself

receiver of IndyMac Federal, thereby replacing the conservatorship with a second

receivership. The FDIC Receiver never paid any dividend.8 Nonetheless, at some

time after the March 2009 sale to OneWest, FDIC Receiver paid, and FDIC

Corporate accepted, some (or all) of the $5.3 billion then remaining in the IndyMac

Federal estate. Am. Comp. ¶ 83 (JA_).

On April 3, 2009, the FDIC represented to the Federal Reserve that it

would address the concerns of counterparties of IndyMac Federal and FDIC

Conservator, who were afraid of doing business with IndyMac’s successors, by

telling them that “the government stands behind this bank.” (JA_). These

statements to the Federal Reserve cannot be reconciled with the FDIC’s subsequent

conduct in this case, including its failure to fulfill its statutory obligation under

section 1821(m)(11-13) to furnish IndyMac Federal with funds to cover losses

incurred during the FDIC’s conservatorship, and its refusal to otherwise honor

MBIA’s contractual rights.

8 Old IndyMac Receiver paid a 50% dividend to uninsured depositors on July 13, 2008. http://www2.fdic.gov/divweb/Dividendindex.asp (last visited on June 1, 2012).


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J. MBIA’s Proofs Of Claim

MBIA filed proofs of claim against IndyMac Federal with FDIC

Receiver on June 17, 2009 and August 26, 2009, expressly designating its claims

as “administrative expense” claims, Am. Comp. ¶ 21 (JA_), that should have been

paid on a priority basis to MBIA in accordance with FIRREA. 12 U.S.C. §

1821(d)(11)(A). MBIA’s proofs of claim asserted, among other things, claims

based on breaches of contractual obligations by FDIC Conservator that occurred

after the creation of IndyMac Federal. In addition, MBIA asserted claims with

respect to the FDIC’s failure to timely repudiate the INDS 2007-1 PSA. In May

2009, MBIA brought suit in the district court on those claims.

K. The FDIC’s No Value Determination

On November 12, 2009, the FDIC Board of Directors issued a “No

Value Determination,” announcing that the IndyMac Federal receivership had

insufficient assets to satisfy any general unsecured creditor claims. Am. Comp. ¶

77 (JA_). On November 24, 2009, the FDIC notified MBIA about the No Value

Determination. (JA_). Despite MBIA’s clear indication that its proofs of claim

concerned “administrative expenses” that were to be paid on a priority basis ahead

of depositors and general unsecured creditor claims, and, therefore, not properly

the subject of the “No Value Determination,” the FDIC informed MBIA that it

would not review the claims, thereby summarily denying them. (JA_).


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SUMMARY OF ARGUMENT

When the FDIC assumes contracts from a failed financial institution

and collects millions in fees under those contracts before selling the contractual

rights at a profit, it cannot be permitted to misclassify damages caused by its

breach of those contracts as mere general creditor claims. The relevant statutory

scheme requires such liability to be paid on a priority basis as “administrative

expenses” of the relevant FDIC receivership.

When IndyMac failed, the FDIC chose to resolve IndyMac through

(a) the creation of a new bank, IndyMac Federal, pursuant to section 1821(m); (b)

placing IndyMac Federal into conservatorship under the FDIC; (c) the assumption

by IndyMac Federal of certain contracts and assets from IndyMac pursuant to the

PAA, including the three PSAs at issue here; (d) the sale, eight months later, of a

substantial portion of IndyMac Federal’s assets to OneWest; and (e) the placing of

IndyMac Federal into receivership, where claims against the IndyMac Federal

estate could be resolved.

While IndyMac Federal was under FDIC Conservator’s control, FDIC

Conservator breached post-closing servicer-and-seller obligations to MBIA under

the PSAs, which FDIC Conservator assumed and, MBIA submits, “approved”, as

part of the PAA. In particular, FDIC Conservator breached its obligations to


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service delinquent mortgage loans, and to repurchase defective mortgage loans that

were improperly included in the IndyMac Transactions.

At the same time, FDIC Conservator continued to pay itself millions

of dollars in servicing fees from the mortgage-loan proceeds that it collected each

month as servicer. FDIC Conservator also used the PSAs to increase the value of

the IndyMac Federal asset portfolio that it would ultimately sell to OneWest.

Pursuant to section 1821(d)(20), liability arising from FDIC

Conservator’s breach of the PSAs constitutes an “administrative expense.”

Pursuant to section 1821(d)(11), FDIC Receiver should have satisfied MBIA’s

claims concerning FDIC Conservator’s liability on a priority basis ahead of

depositors and general creditors. As alleged in the Amended Complaint, the FDIC

acted contrary to the relevant statutory scheme when it failed to do so, and instead

summarily rejected MBIA’s proofs of claim after issuing the No Value

Determination.

In dismissing MBIA’s claims as prudentially moot, the district court

incorrectly held that MBIA’s claims could not qualify as administrative expenses.

In particular, the district court erroneously held that FDIC Conservator did not

“approve” the PSAs. In doing so, the district court relied on an unduly restrictive

reading of section 1821(d)(20), and read some unidentified formal approval

process into the statute. The formal approval process that the district court held


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was required to bring a contract within the meaning of section 1821(d)(20) simply

does not exist in either the statute or the relevant regulations.

The district court also improperly failed to consider MBIA’s

allegations that FDIC Conservator “approved” the PSAs when it (a) purposefully

executed the 65-page formal PAA, thereby assuming the PSAs, (b) chose not to

timely repudiate the PSAs, (c) paid itself over $3 million in servicing fees, (d)

partially performed its servicing obligations and (e) ultimately sold two of the

PSAs to OneWest.

More fundamentally, the district court concluded that when the FDIC

breaches a contract it expressly assumes and does not repudiate, only a general

creditor claim results. This makes no sense. If this were the law, then the entire

statutory scheme governing the FDIC’s repudiation of contracts would be rendered

unnecessary and superfluous. Section 1821(d)(20), considered in pari materia

with the repudiation process in the same statute, demonstrates that there would

never be any need for the FDIC to repudiate any contract if “un-repudiated”

contracts produced only general creditor claims.

Separate and apart from misconstruing the relevant statute and failing

to properly apply the relevant factual allegations, the district court ignored the

serious policy problems that its interpretation and holding will create if left intact.

Counterparties who are obligated to continue to do business with a failed bank


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must have meaningful recourse for breaches by the FDIC while conservator of a

failed institution, especially if the FDIC is simultaneously reaping benefits under

the breached agreements, and using such agreements to enhance the value of the

failed institution for an eventual asset sale.

If the district court’s holding is allowed to stand, there is no incentive

for rational counterparties to continue to perform their obligations under any

contract expressly assumed and not repudiated by the FDIC. For example, there is

no reason why counterparties who owe payments to the FDIC in connection with

continuing financial relationships will voluntarily make those payments absent

advance, formal approval of the contracts by the FDIC conservatorship. This, of

course, would interfere with the FDIC’s ability to resolve the failed institution, and

preserve its value. Plainly, Congress did not intend such a result.

Under FIRREA, an FDIC conservator can either repudiate a contract

or not repudiate the contract. Any un-repudiated contract should be considered

“approved” within the meaning of section 1821(d)(20), especially when, as here,

the FDIC Conservator assumed the contract in writing and continued to reap

financial benefits from the contract before selling the contract at a profit. It

follows that liability flowing from a breach of such a contract should be treated as

an administrative expense paid on a priority basis pursuant to section


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1821(d)(11)(A). Consequently, MBIA’s administrative expense claims here

should not have been dismissed as prudentially moot.

The district court’s prudential mootness analysis also ignored FDIC

Corporate’s obligations under section 1821(m)(11)-(13) to fund IndyMac Federal’s

losses, including losses related to liability arising from breaches of the PSAs that

occurred during FDIC Conservator’s tenure. If FDIC Corporate had fulfilled its

statutory obligations, MBIA’s claims could have been satisfied. Similarly, if the

FDIC had accounted for FDIC Corporate’s statutory obligations to IndyMac

Federal as an asset of FDIC Receiver, the No Value Determination could not have

been issued. For these additional reasons, the district court’s prudential mootness

determination should be reversed.

The district court also improperly shielded from review FDIC

Receiver’s transfer of IndyMac Federal’s assets to FDIC Corporate when it held

that MBIA’s claims against FDIC Corporate were barred by section

1821(d)(10)(B), a provision clearly inapplicable to the payment. That section only

shields the FDIC from liability for “pay[ing] dividends on proved claims,”

something which the IndyMac Federal Receiver has indisputably never done.

Finally, to ensure that MBIA has a remedy to address the FDIC’s

ultra vires conduct, this Court should reinstate MBIA’s claims for declaratory and

injunctive relief. As demonstrated above, in connection with resolving IndyMac,


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the FDIC repeatedly acted beyond, and contrary to, its statutorily prescribed

powers and functions. Thus, the ultra vires exception to section 1821(j)’s bar to

injunctive relief should be applied.

STANDARD OF REVIEW

This Court reviews de novo the district court’s decision to dismiss for

lack of subject matter jurisdiction and for failure to state a claim. Doe v.

Metropolitan Police Dep’t, 445 F.3d 460, 466 (D.C. Cir. 2006); Winder v. Erste,

566 F.3d 209, 214 (D.C. Cir. 2009). In reviewing the district court’s decision, this

Court should accept as true all the well-pleaded allegations in the Amended

Complaint. Winder, 566 F.3d at 214.

ARGUMENT

Under Rule 12(b)(6), a complaint must contain sufficient factual

matter, accepted as true, to “state a claim to relief that is plausible on its face.”

Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007); see also Ashcroft v. Iqbal,

556 U.S. 662, 677-78 (2009). Dismissal for lack of subject matter jurisdiction

pursuant to Rule 12(b)(1) is allowed only when the district court lacks the statutory

or constitutional power to adjudicate the case. See Kokkonen v. Guardian Life Ins.

Co. of Am., 511 U.S. 375, 377 (1994).


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POINT I MBIA’S CLAIMS ARE NOT PRUDENTIALLY MOOT

The doctrine of prudential mootness favors dismissal when “a

controversy, not actually moot, is so attenuated that considerations of prudence and

comity for coordinate branches of government counsel the court to stay its hand,

and to withhold relief it has the power to grant.” Chamber of Commerce v. United

States Dep’t of Energy, 627 F.2d 289, 291 (D.C. Cir. 1980). However, a court

should not dismiss claims as prudentially moot when “a favorable judgment. . .

will provide a real measure of redress” for the wrongs alleged. Foretich v. United

States, 351 F.3d 1198, 1216 (D.C. Cir. 2003).

Here, the district court erred when it dismissed MBIA’s claims as

prudentially moot. The district court’s prudential mootness analysis turned almost

entirely on its erroneous conclusion that MBIA’s claims did not constitute

“administrative expenses,” but instead were properly treated by the FDIC as

general creditor claims. MBIA, 816 F. Supp. 2d at 101-02. The district court

reached its ultimate holding through a series of erroneous legal conclusions, some

of which relied on faulty factual premises. Specifically, to reach its ultimate

holding, the district court misinterpreted several statutory provisions, including

sections 1821(d)(11), 1821(d)(20), 1821(e)(7) and 1821(m), and failed to

recognize the significance of key allegations in the Amended Complaint regarding


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affirmative conduct undertaken by FDIC Conservator, which demonstrates it

“approved” the PSAs.

A. MBIA’s Claims Constitute “Administrative Expenses” Entitled To Priority

“Administrative expenses” incurred in connection with resolving a

failed institution are to be paid by the FDIC, as receiver, during the claims process

on a priority basis, even ahead of depositor claims. 12 U.S.C. § 1821(d)(11)(A)(i).

This is in contrast to general creditor claims, which are only paid after secured

claims, administrative expenses and depositor claims. 12 U.S.C. § 1821(d)(11)(A).

Section 1821(d)(11) does not expressly define “administrative

expenses.” However, various related provisions identify certain categories of

liabilities that Congress intended to be treated as “administrative expenses.” In

particular, section 1821(d)(20) provides:

Notwithstanding any other provision of this subsection, any final and unappealable judgment for monetary damages entered against a receiver or conservator for an insured depository institution for the breach of an agreement executed or approved by such receiver or conservator after the date of its appointment shall be paid as an administrative expense of the receiver or conservator.

12 U.S.C. § 1821(d)(20) (emphasis added).


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Pursuant to this provision, the FDIC, as a conservator, can be held

liable for breaching agreements with contractual counterparties. Such liability is

not to be treated as a general creditor claim by an FDIC receiver in the context of

the claims process. Rather, liability arising from an FDIC conservator’s breach of

an approved contract is to be treated as an administrative expense of the FDIC

receiver to be paid on a priority basis pursuant to section 1821(d)(11)(A).9 This

statutory scheme protects counterparties who themselves are bound by agreements

the FDIC chooses to enforce. 12 U.S.C. § 1821(e)(13).

Here, MBIA’s breach of contract claims are predicated on the PSAs.

See Am. Compl. ¶¶ 96, 103, 114, 147, 157, 175. MBIA alleged that the FDIC

Conservator “approved” the PSAs in several different ways after the date of its

appointment as conservator. Both as a result of this affirmative action (most

significantly, its execution of the formal PAA) and by its decisions not to timely

repudiate the PSAs, FDIC Conservator “approved” the PSAs. As a result, liability

arising from their breach should have been “paid as an administrative expense of

the receiver” in accordance with section 1821(d)(20).

9 There is no claims process for an FDIC conservator – only an FDIC receiver. 12 U.S.C. § 1821(11)(A). Thus, as the district court correctly observed, to give proper effect to section 1821(d)(20), which refers to the “administrative expenses” of the conservator, an FDIC receiver must be obligated to pay them on a priority basis. 816 F. Supp. 2d at 98 n.18.


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First, after IndyMac Federal was formed and the FDIC became its

conservator, FDIC Conservator “approved” the PSAs when it entered into the PAA

on behalf of IndyMac Federal. Specifically, pursuant to the PAA, FDIC

Conservator, on behalf of IndyMac Federal, expressly assumed IndyMac’s (1)

“duties and obligations under any contract to which [IndyMac] provides mortgage

servicing for others,” (2) “Qualified Financial Contracts” and (3) “mortgage

servicing rights and related contracts.” Am. Comp. ¶¶ 48-51 (JA_); PAA §§ 2.1(j),

(k) (JA_). This included IndyMac’s post-closing seller and servicing obligations

under the PSAs.

Second, after assuming the PSAs, FDIC Conservator made the

conscious decision not to timely repudiate them as it could have done pursuant to

section 1821(e)(1)-(3).10 This is further evidence that FDIC Conservator

“approved” the relevant agreements as that term is used in section 1821(d)(20).

FDIC Conservator’s affirmative decision not to repudiate the PSAs was ostensibly

made because FDIC Conservator found that the PSAs added value to IndyMac

Federal, value that it would later monetize when selling IndyMac Federal’s assets

to OneWest. See Am. Comp. ¶¶ 62 (JA_).

10 Had FDIC Conservator repudiated the agreements, MBIA would have been able to transfer responsibility for servicing loans away from IndyMac Federal, and could have avoided certain servicing-related losses suffered during the period of the FDIC’s conservatorship.


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Third, FDIC Conservator paid itself over $3 million in servicing fees

pursuant to the PSAs from the mortgage loan proceeds that it collected each month

as servicer. This too evidences that FDIC Conservator had “approved” the relevant

agreements after its appointment, thereby making liability flowing from its breach

of those agreements “an administrative expense” under section 1821(d)(20). See

Janowsky v. United States, 133 F.3d 888, 892 (Fed. Cir. 1998); Silverman v.

United States, 679 F.2d 865, 870 (Ct. Cl. 1982) (“By accepting the benefits

flowing from the senior FTC official’s promise of payment, the FTC ratified such

promise and was bound by it”).

Fourth, FDIC Conservator partially performed its servicing

obligations under the PSAs. This partial performance further evidences that FDIC

Conservator had “approved” the relevant agreements. If it had not approved the

PSAs, it would not have performed. See Winston v. Mediafare Entm’t Corp., 777

F.2d 78, 80 (2d Cir. 1985).

Fifth, in March 2009, FDIC Conservator elected to sell two of the

three PSAs to OneWest, thereby turning the assumed and un-repudiated contracts

into additional cash that enriched the IndyMac Federal estate, and ultimately

replenished the coffers of FDIC Corporate.


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Together these five separate decisions and affirmative acts by FDIC

Conservator provide substantial evidence that FDIC Conservator “approved” the

PSAs as contemplated by section 1821(d)(20).

B. The District Court Erred In Concluding That FDIC Conservator Did Not “Approve” The PSAs

The district court never squarely addressed why FDIC Conservator’s

execution of the PAA and other affirmative acts did not mean the PSAs were

“approved” under section 1821(d)(20). Instead, the district court focused on

whether the PSAs had been “approved” through “inaction,” ultimately reaching the

erroneous conclusion that FDIC Conservator did not “approve” the relevant

agreements, as that term is used in section 1821(d)(20). 816 F. Supp. 2d at 93-98.

As demonstrated below, the district court’s reasoning and analysis were flawed.

1. “Approved” As Used In 12 U.S.C. § 1821(d)(20) Means To Have Consented, Agreed Or Ratified

The district court began its analysis by selecting one unduly narrow

definition of “approve” from several possible definitions offered by the

dictionaries it consulted – Black’s Law Dictionary and Oxford English Dictionary,

OED Online – and ignoring other sources. Specifically, the district court held that

“approved” as used in section 1821(d)(20) means “give formal sanction to; to

confirm authoritatively.” 816 F. Supp. 2d at 96. While “formal sanction” is


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certainly a species of “approval,” something can be “approved,” as that word is

more commonly used, through simple consent, agreement or ratification. See

Random House Webster’s Unabridged Dict. 103 (2d ed. 1998) (definitions of

“approve” include “to consent or agree to” and “ratify”); Webster’s New Universal

Unabridged Dict. 92 (2d ed. 1983) (definitions of “approve” include “to ratify”);

see also Doe v. United States, 372 F.3d 1347, 1359 (Fed. Cir. 2004) (finding the

statutory word “approve” ambiguous and noting that its dictionary definitions were

broad enough to encompass both written and oral approval).

As this Court has previously recognized, in construing statutory

language it is not proper to choose one narrow dictionary definition over an equally

applicable, but broader definition, especially when the narrower definition is

selected from a specialized dictionary such as Black’s Law Dictionary. See Bank

of New York v. FDIC, 508 F.3d 1, 5 (D.C. Cir. 2007) (“why choose Black’s? Other

dictionaries contain broader definitions of these words”); see also Cabell v.

Markham, 148 F.2d 737, 739 (2d Cir.) (when construing statutes, it is improper to

“make a fortress out of the dictionary”), aff’d, 326 U.S. 404 (1945).

Yet, that is exactly what the district court did here. Fortunately, the

“battle of definitions” does not need to be decided in a statutory vacuum. The

district court’s definition choice cannot be reconciled with the statute inasmuch as


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the district court has improperly grafted some unidentified formality and process

onto section 1821(d)(20) where none exists.

When Congress intended for formal approval to be obtained through

something more than simple consent, agreement or ratification, the statute spells

out those requirements in plain English. For example, section 1821(n) provides:

The articles of association and organization certificate of a bridge depository institution as approved by the Corporation shall be executed by 3 representatives designated by the Corporation.

12 U.S.C. § 1821(n)(1)(C) (emphasis added). Similarly, section 1821(d) provides:

The receiver may, in the receiver’s discretion and to the extent funds are available, pay creditor claims which are allowed by the receiver, approved by the Corporation pursuant to a final determination pursuant to paragraph (7) or (8) . . . .

12 U.S.C. § 1821(d)(10)(A) (emphasis added).

In both instances, when Congress sought to formalize or dictate the

FDIC approval process in some way, it expressly did so. See Russello v. United

States, 464 U.S. 16, 23 (1983) (“Where Congress includes particular language in

one section of a statute but omits it in another section of the same Act, it is

generally presumed that Congress acts intentionally and purposely in the disparate

inclusion or exclusion”) (internal citations omitted). By contrast, in the case of

section 1821(d)(20), Congress did not add any formal process or requirements


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specifying the manner in which a contract should be approved before liability

arising from a breach of such a contract can be treated as an “administrative

expense.”

2. The Formal Approval Process Envisioned By The District Court Is Not Found In Either The Statute Or The FDIC’s Regulations

The district court’s analysis ignored these provisions, which provide

insight into how Congress used the word “approved.” Instead, the district court

focused on the fact that section 1821(d)(20) does not refer to other categories of

breached contracts, such as contracts that are “assumed” or “not repudiated” or

“performed.” 816 F. Supp. 2d at 96, 99. The district court’s logic is flawed in

several respects.

As an initial matter, nowhere does section 1821(d) refer to contracts

being “approved,” except in sub-section 1821(d)(20). This suggests that Congress

intended to include other categories of contracts, such as “assumed,” “performed,”

“enforced” or “un-repudiated” contracts within the category of “approved”

contracts.

Tellingly, the district court did not point to any place in section 1821

or the FDIC’s regulations to suggest how a contract could be formally “approved,”

as that term was construed by the district court. For “approved” to require some

special formalities, either the statute or the FDIC’s regulations must have created


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the formal approval process envisioned by the district court. See Laurel Baye

Healthcare of Lake Lanier, Inc. v. NLRB, 564 F.3d 469, 472 (D.C. Cir. 2009) (“A

cardinal principle of interpretation requires us to construe a statute so that no

provision is rendered inoperative or superfluous, void or insignificant”) (internal

quotations omitted); 2A Norman J. Singer & J.D. Singer, Sutherland Statutes and

Statutory Construction 46:6 (7th ed. 2007).

Yet, neither the statute nor the FDIC’s regulations does so. As a

result, there is no standard or guidance concerning how any contract can ever be

“approved,” as envisioned by the district court, and thus qualify as the kind of

contract that can give rise to liability that should be treated as an “administrative

expense.”11 Remarkably, the district court never attempted to specify what exactly

the FDIC would have to do to “approve” a contract. Does it have to hold a

meeting, take a vote and send a notice citing the statute? Does it have to get out a

copy of the exact contract and write “approved” on its face? Does the FDIC have

11 The district court’s flawed statutory construction analysis also rested, in part, on the sub-section heading Congress used for section 1821(d)(20). See 816 F. Supp. 2d at 96. Of course, statutory titles should not be relied on to constrain or alter the meaning of otherwise clear operative statutory provisions. See, e.g., National Ctr. for Mfg. Scis. v. Department of Defense, 199 F.3d 507, 511 (D.C. Cir. 2000). In any event, if correct, the district court’s interpretation would effectively read the word “approved” out of the statute by equating it to “executed.” Congress would not have used the phrase “executed or approved” in section 1821(d)(20) if it intended to equate “approved” with “executed” as the district court suggests.


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to apply a special stamp? The district court did not venture onto such shaky

ground for good reason: there is nothing in the statute or any FDIC regulation that

requires any formalities to be observed for a contract to be “approved” within the

meaning of section 1821(d)(20).

Rather, FIRREA sets up a binary statutory scheme whereby contracts

of a failed institution are either repudiated or not repudiated, and those that are not

repudiated may be enforced by the FDIC. 12 U.S.C. § 1821(e). “Approved”

contracts thus should include those that are assumed and not repudiated, like the

PSAs.

3. The District Court Ignored MBIA’s Allegations That FDIC Conservator “Approved” The PSAs

Applying its erroneous construction, the district court further erred by

ignoring allegations and evidence that FDIC Conservator “approved” the PSAs.

As set forth above, there were five different ways FDIC Conservator “approved”

the PSAs. In particular, after the FDIC formed IndyMac Federal and placed it

under conservatorship, FDIC Conservator executed the PAA, thereby expressly

acquiring IndyMac’s deposits and various agreements from IndyMac for IndyMac

Federal, including the PSAs. Again, FDIC Conservator’s execution of the PAA

cannot be squared with the district court’s conclusion that the relevant agreements


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were not “approved” by FDIC Conservator after its appointment within the

meaning of section 1821(d)(20).

This was not a situation where the FDIC, as receiver, simply stepped

into the shoes of a failed institution. Here, the FDIC created IndyMac Federal, and

placed it into conservatorship. Only after FDIC Conservator had control of

IndyMac Federal did it execute the PAA, thereby assuming the PSAs. Indeed,

even if “approved” required some “formal sanction” or “authoritative”

confirmation, there is nothing in the record below to support the conclusion that

the formal PAA, signed by the FDIC in all three capacities, was anything less than

an authoritative, formal approval of the PSAs.

The district court all but ignored MBIA’s allegations concerning the

PAA.12 The district court also all but ignored MBIA’s allegations of FDIC

Conservator’s other affirmative conduct – reaping financial benefits under the

PSAs, and partially performing servicing obligations. Instead, the district court

focused almost exclusively on MBIA’s allegation that FDIC Conservator did not

repudiate the agreements after deciding to acquire them pursuant to the PAA.

For example, the district court stated:

12 The district court addressed the PAA only in the context of making a policy argument to support its flawed interpretation of section 1821(d)(20). 816 F. Supp. 2d at 96-97. This brief addresses that policy argument below. See this Brief at I. E., infra.


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“MBIA’s argument that the FDIC ‘approved’ the Transaction agreements simply because the FDIC – in its capacity as the conservator of IndyMac Federal – did not repudiate them is not consistent with the language or the intent of the statute.” 816 F. Supp. 2d at 92 (emphasis added).

“Plaintiff's concept of approval by omission does not comport with the plain language of the statutory provision and to interpret the clause in this manner would broaden administrative priority well beyond anything Congress appears to have intended.” Id. at 93-94 (emphasis added).

“More important, treating claims as administrative expenses based simply on the conservator’s inaction would be contrary to the clear system of priorities set out in the statute.” Id. at 97 (emphasis added).

As these passages demonstrate, throughout its decision the district

court rejected MBIA’s claims for relying solely on FDIC Conservator’s “inaction”

and “tacit” “approval by omission” when FDIC Conservator decided not to avail

itself of its statutory right to repudiate the PSAs. But MBIA’s claims are not based

on mere inaction. Thus, the primary premise of the district court’s decision was

incorrect.

In fact, MBIA alleged affirmative action on the part of FDIC

Conservator, including its formal execution of the PAA, its paying itself millions

of dollars in servicing fees, its partial performance of its servicing obligations and

its sale of two of the PSAs to OneWest, all as proof that FDIC Conservator


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“approved” the PSAs. The district court’s failure to properly consider these

allegations is reversible error.

C. Treating Liability Arising From FDIC Conservator’s Breach Of Contracts As Administrative Expenses Is Consistent With Section 1821(e)(7)(B)

Construing “administrative expenses” to include liability arising from

FDIC Conservator’s breach of the PSAs is entirely consistent with how Congress

wanted other contractual obligations owed by FDIC Conservator to the failed

institution’s contractual counterparties to be treated. For example, by virtue of

section 1821(e)(7)(B), Congress ensured that counterparties would be compensated

for services that they continued to provide a failed institution after the FDIC

became the failed institution’s conservator. Congress wanted counterparties to be

protected when they satisfied their contractual obligations (e.g., here, MBIA

continued to insure investors), and the FDIC received tangible benefits (here, $3.3

million in servicing fees). As section 1821(e)(7)(B)(ii) demonstrates, Congress did

not want such counterparties to be treated as general creditors. The same

Congressional intent manifested in section 1821(e)(7)(B) is reflected in section

1821(d)(20).

In its decision, the district court ignored the parallels between section

1821(e)(7)(B) and section 1821(d)(20). Instead, it reasoned that section

1821(e)(7)(B) is inapplicable because MBIA did not allege that FDIC Conservator


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accepted services from MBIA. 816 F. Supp. 2d at 99-100. This reasoning reflects

a misunderstanding of how residential mortgage-backed securitizations work when

they involve financial guarantee insurers like MBIA. MBIA’s insurance payments

to investors directly and indirectly benefitted IndyMac Federal, as seller, under the

terms of the PSAs. Among other things, if MBIA failed to make insurance

payments, investors would have been harmed, and would have made claims against

IndyMac Federal for any missed bond payments.

In any event, even if FDIC Conservator did not accept any services

from MBIA, the district court’s analysis still misses the point. Section

1821(e)(7)(B) reflects the following basic policy choice made by Congress: the

FDIC should not accept benefits from counterparties who hold up their end of

contractual arrangements, without those counterparties being compensated ahead

of depositors during the resolution process. This Congressional intent should

inform this Court’s interpretation of section 1821(d)(20).

D. Congress’s Inclusion Of A Repudiation Process In FIRREA Confirms That MBIA’s Interpretation Of Section 1821(d)(20) Is Correct

The rule of in pari materia requires that statutory provisions should be

read and construed together, so that each is given effect. See United States v.

Stewart, 311 U.S. 60, 64 (1940). The district court’s attempt to find some other

category of general creditor claims based on breached un-repudiated contracts is


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inconsistent with the statutory scheme. The district court’s narrow construction of

section 1821(d)(20) leaves no material difference between claims resulting from

(a) the breach of an un-repudiated agreement (like the PSAs here), and (b) the

repudiation of an agreement, as both would result in general creditor claims. This

makes no sense.

There would be no reason for Congress to have established FIRREA’s

complex repudiation process if, as the district court erroneously held, damages

arising from the conservator’s breach of an un-repudiated contract left a

counterparty with only a general creditor claim. The repudiation process would be

entirely unnecessary. Congress simply could have omitted the repudiation

framework altogether, and allowed an FDIC receiver or conservator to breach

those agreements it did not want to perform. Aggrieved counterparties, whether

their contracts were repudiated or not, would have general creditor claims.

But that is not what Congress did. Congress crafted both a

repudiation provision that created general creditor claims (12 U.S.C. § 1821(e)),

and a separate provision requiring that liability arising from a breach of contract by

an FDIC conservator or receiver be treated as an administrative expense that had to

be paid on a priority basis. See 12 U.S.C. §§ 1821(d)(11), 1821(d)(20). Both

provisions must be given effect.


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The district court implicitly recognized the foregoing as an obstacle to

its ultimate holding. Trying to overcome the issue, the district court only

compounded the flaw in its statutory construction analysis. In particular, pointing

to section 1821(e)(3)’s limitation on repudiation liability, the district court

suggested that Congress included the repudiation process solely as a way for FDIC

Conservator to avoid punitive damages and limit its liability to direct

compensatory damages for contracts that it did not intend to honor. 816 F. Supp.

2d at 98. This reading of FIRREA cannot be reconciled with the statute, and

otherwise misconstrues Congress’s intent.

Limiting repudiation liability had nothing to do with differentiating

between repudiated contracts and breached un-repudiated contracts. Congress was

merely trying to codify limitations that exist at common law for damages arising

from the repudiation of contracts. See S. Rep. No. 101-19, 101st Cong., 1st Sess.,

at 314 (Apr. 13, 1989). Moreover, under the district court’s reasoning, by

breaching an un-repudiated contract, FDIC Conservator exposed itself to other

types of damages theories. If Congress intended to consciously expose FDIC

Conservator to a limitless number of damage theories, it surely would have said so,

especially given the care Congress took elsewhere to fashion limits to the FDIC’s

liability.


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In any event, for all practical purposes, the damages available for

breaching un-repudiated contracts, like the PSAs, would be limited to direct

compensatory damages. Indeed, MBIA’s claims here arising from the PSAs are

limited to direct compensatory damages. While it is theoretically possible that a

counterparty to a breached un-repudiated contract could seek punitive damages,

lost profits or tort-like damages, it is extremely difficult to imagine under what

circumstances such theories could be actionable in the context of a failed financial

institution run by the FDIC where the plaintiff is seeking redress for an FDIC

conservator’s conduct.13 It strains credulity to believe that Congress had such

hypothetical claims in mind when drafting FIRREA and section 1821(d)(20).

13 See New York Univ. v. Continental Ins. Co., 662 N.E.2d 763, 767 (N.Y. 1995) (punitive damages for breach of contract unavailable except in extraordinary circumstances when breach evidences “criminal indifference to civil obligations” that is part of a pattern of “morally reprehensible” tortious conduct directed at plaintiff and general public); Kenford Co., Inc. v. Erie Cty., 493 N.E.2d 234, 235-36 (N.Y. 1986) (lost profits not recoverable when damage theory is based on projections or estimates, or when parties, as evidenced by contract’s terms, do not expressly provide for them as remedy); Johnson v. Jamaica Hosp., 467 N.E.2d 502, 504 (N.Y. 1984) (pain-and-suffering damages not recoverable in a breach of contract action except in exceptional circumstances when breach involves mishandling of dead body, or ejection accompanied by accusations of immorality or humiliation).


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E. Public Policy Requires Liability Arising From FDIC Conservator’s Breaches To Be Treated As Administrative Expenses

As a matter of public policy, the district court’s decision refusing to

treat FDIC Conservator’s liability arising from its breach of contracts with MBIA

as administrative expenses should be reversed. Under the district court’s

construction of the statute, the FDIC, in its capacity as conservator of a failed

institution, may, without any legal consequences whatsoever, (a) affirmatively and

in writing deliberately assume a contract, then (b) elect not to promptly repudiate

the contract, while simultaneously (c) breaching its obligations under those very

same contracts despite (d) paying itself millions of dollars pursuant to the contracts

before (e) selling the contract in an asset sale to a third party and (f) using the

profits to replenish FDIC Corporate’s coffers. This cannot possibly be consistent

with Congress’s intent.

Counterparties must have meaningful recourse for breaches of un-

repudiated contracts by the FDIC that occur while it is the conservator of a failed

institution, especially if the FDIC is simultaneously reaping benefits under the

breached agreements, and using such agreements to enhance the value of the failed

institution for an eventual asset sale to raise funds for depositors. See In re New

Valley, 168 B.R. at 90 (“the FDIC cannot seek to enforce one part of the agreement


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and simultaneously seek to bar another part of the same agreement”); cf. 12 U.S.C.

§ 1821(e)(7)(B)(ii).

Otherwise, there is no incentive for counterparties to voluntarily

continue to perform their obligations. Rather, once the FDIC is appointed receiver

or conservator of a failed institution, rational counterparties would demand the

formal approval envisioned by the district court (although no one knows what that

is) before performing obligations, or making payments. This, of course, would

interfere with the FDIC’s ability to resolve the failed institution and maximize its

value. Plainly, Congress did not intend to create such a situation.

The district court failed to consider this policy concern. Instead, the

district court focused on its concern that allowing “inaction” to constitute

“approval” would open the floodgates to numerous administrative expense claims,

thereby unduly burdening future FDIC conservators attempting to conserve estate

assets. 816 F. Supp. 2d at 96-97. Once again, the district court’s focus on

“inaction” ignores MBIA’s actual allegations here. FDIC Conservator expressly

assumed the PSAs by executing the PAA, and took other affirmative steps

demonstrating it approved the PSAs. See this Brief at POINT I.B., supra. Under

the circumstances, there is no reason why Congress would have wanted MBIA to

be treated as a general creditor of the failed institution, and not the holder of an

administrative expense claim pursuant to section 1821(d)(20).


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The district court’s concern also was based on other false premises:

not every contractual obligation that an FDIC conservator fails to “immediately”

repudiate will automatically turn into administrative expenses, as the district court

suggests. See 816 F. Supp. 2d at 97. Rather, an FDIC conservator has a

“reasonable period” to decide whether to repudiate a contract, typically 90 days.

See this Brief at POINT IV, infra. Moreover, only when the conservator breaches

an un-repudiated agreement will there be any risk of liability being treated as an

administrative expense. Thus, the district court’s “floodgates” argument is without

merit.

F. Treating Liability Arising From FDIC Conservator’s Breaches As Administrative Expenses Is Consistent With The Bankruptcy Code

Further support for MBIA’s interpretation of “administrative

expenses” can be found in bankruptcy law. Office & Prof’l Employees Int’l Union,

Local 2 v. FDIC, 27 F.3d 598, 603 n.3 (D.C. Cir. 1994) (looking to bankruptcy law

to interpret the concept of “administrative expenses” under FIRREA); see also

Franklin Fin. v. Resolution Trust Corp., 53 F.3d 268, 272 (9th Cir. 1995)

(“[B]ankruptcy law was intended to be a model for FIRREA’s

receivership/conservatorship scheme”). Congress expressly modeled the FDIC’s

power to repudiate contracts on the Bankruptcy Code, which affords debtors and

trustees similar powers to assume or reject contracts. See S. Rep. No. 101-19, at


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314 (FIRREA repudiation provision “incorporates rights and principles established

at common law or in bankruptcy. Subparagraphs (D) and (E) are closely modeled

on parallel provisions of section 365 of the Bankruptcy Code”). The district court

ignored the structural parallels between FIRREA and the Bankruptcy Code.

Like the Bankruptcy Code, section 1821(d)(20) should be read to treat

liability flowing from un-repudiated financial contracts as administrative expenses

to be paid on a priority basis, especially when the FDIC conservator accepts

financial benefits under the contracts. Under the Bankruptcy Code, a debtor or

trustee may not exercise its assumption or rejection powers under 11 U.S.C. § 365

to assume the benefits of an executory contract without also assuming its

burdens.14 Moreover, an executory contract that is assumed under 11 U.S.C. § 365

“after commencement of the [bankruptcy] case is entitled to the same treatment as

a new contract or lease entered into by the trustee . . . any damages for breach of

that contract or lease will be entitled to administrative expense priority.” 1 Alan

N. Resnick & Henry J. Sommer, Collier Bankruptcy Manual ¶ 503.06[5][b] (3d ed.

rev. 2012) (emphasis added); Adelphia Bus. Solutions, Inc. v. Abnos, 482 F.3d 602,

606 (2d Cir. 2007). This priority is based upon the premise that assumed contracts

benefit the bankruptcy estate and pre-petition creditors. In re Old Carco LLC, 424

14 See Thompson v. Texas Mexican Ry. Co., 328 U.S. 134, 141 (1946); City of Covington v. Covington Landing L.P., 71 F.3d 1221, 1226 (6th Cir. 1995).


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B.R. 650, 655 (Bankr. S.D.N.Y. 2010), aff’d, No. 10 Civ. 2800, 2010 WL 4455648

(S.D.N.Y. Nov. 2, 2010). A further “purpose of the priority status for

administrative expenses is to ensure that the services needed to preserve the estate

will be performed and provided by third-parties by minimizing the risk that the

debtor will ultimately not be able to provide payment therefor.” In re Kollel Mateh

Efraim, LLC, 456 B.R. 185, 191 (S.D.N.Y. 2011) (internal quotation omitted).

These same purposes exist in the context of the resolution of a failed bank, and

should inform the construction of the term “administrative expenses” as used in

section 1821(d)(20).

Bankruptcy Code precedent also illustrates the erroneous nature of the

district court’s belief that administrative expenses should be limited to minimal

services necessary to “keep the lights on” or the like. See 816 F. Supp. 2d at 93.

Bankruptcy trustees and debtors, like an FDIC conservator, are often motivated to

assume profitable operating contracts of the failed institution, far beyond utilities

and janitorial services. In re Old Carco LLC, No. 10 Civ. 8283, 2012 WL 893614,

at *2 (S.D.N.Y. Mar. 15, 2012) (“Pursuant to the Purchase Agreement and the Sale

Order, New Chrysler’s ‘purchased assets’ included assumed and assigned dealer

agreements for Chrysler, Dodge and Jeep vehicle lines . . .”); In re GM Corp., 407

B.R. 463, 483 (Bankr. S.D.N.Y. 2009) (“Substantially all of old GM’s executory


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contracts with direct suppliers are likely to be assumed and assigned to New GM”),

aff’d sub nom. In re Motors Liquidation Co., 428 B.R. 43 (S.D.N.Y. 2010).

G. MBIA’s Interpretation Of Section 1821(d)(20) Is Consistent With Legislative History

Since section 1821(d)(20) is clear on its face, resorting to legislative

history is unnecessary. See United States v. Gonzales, 520 U.S. 1, 6 (1997). Thus,

there is no need for this Court to concern itself with the relevant legislative history.

However, because the district court misconstrued the legislative history to bolster

its erroneous statutory construction, MBIA is compelled to address it here.

Notwithstanding the district court’s suggestion to the contrary,

MBIA’s statutory construction is entirely consistent with the statute’s legislative

history. In enacting the National Depositor Preference Act, which established

administrative expenses as a priority payment under section 1821(d)(11)(A), a

Congressional conference report noted that “administrative expenses” include

“expenses that preserve the value or the operation of the failed institution in

preparation for resolution.” H.R. Conf. Rep. No. 103-213, at 436, reprinted in

1993 U.S.C.C.A.N. 1088, 1125 (Aug. 4, 1993) (emphasis added).

The district court failed to recognize MBIA’s allegation that the PSAs

preserved the value of the IndyMac Federal receivership estate, and that liabilities

arising from their breach were exactly the kind of administrative expenses


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envisioned by Congress.15 There can be little doubt that the PSAs, along with the

remainder of IndyMac’s vast $184 billion portfolio of mortgage loan-servicing

rights, constituted a valuable asset of IndyMac Federal. As alleged in the

Amended Complaint, IndyMac Federal earned as much as $3.3 million as servicer

on the $1 billion portfolio comprising the IndyMac Transactions. Thus, the

MBIA-insured mortgage pools were part of IndyMac Federal’s $184 billion loan-

servicing portfolio that generated approximately $600 million in servicing fees

during FDIC Conservator’s tenure alone. See Statement of Facts, Sections H & I,

supra.

H. MBIA’s Interpretation Of Section 1821(d)(20) Is Consistent With The FDIC’s Regulations

The district court also found support for its incorrect interpretation in

the FDIC’s regulations, which the district court suggests confine “administrative

expenses” to routine operating expenses like data-processing services and utility-

bill payments. 816 F. Supp. 2d at 93. They do no such thing. Rather, the FDIC’s

regulations provide a non-exclusive list of expenses that a receiver may incur,

which should be treated as “administrative expenses.” See 12 C.F.R. § 360.4.

15 See FDIC v. Phoenix Casa Del Sol, LLC, No. CV 09–2556–PHX–MHM, 2011 WL 814858, at *3 (D. Ariz. Mar. 3, 2011) (expenses incurred to preserve bank’s assets for liquidation constitute “administrative expenses which deserve to receive the highest priority of repayment” after assets are liquidated by FDIC).


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Moreover, as noted above, corporate debtors in Chapter 11 bankruptcy routinely

assume large valuable operating contracts, thus making amounts due under those

contracts into administrative expenses. See this Brief at POINT I. F., supra.

Importantly, the FDIC’s regulations make clear that “administrative

expenses” include obligations that are determined by the FDIC to be “necessary

and appropriate to facilitate the smooth and orderly liquidation or other resolution

of the institution.” 12 C.F.R. § 360.4. In this case, FDIC Conservator determined

that the PSAs were necessary to the resolution of IndyMac when it elected to

assume and not repudiate them. In particular, FDIC Conservator made the

decision to use the PSAs to generate millions of dollars and increase the value of

IndyMac Federal in anticipation of the asset sale to OneWest.

The servicing rights provided by the PSAs proved lucrative to FDIC

Conservator. See Am. Compl. ¶ 62 (JA_). Had these agreements been repudiated

at the outset of the conservatorship, and IndyMac Federal foregone the servicing

rights and income generated by those agreements, the value of the institution upon

sale would have been reduced. For these reasons, treating liability arising from the

PSAs as “administrative expenses” is entirely consistent with the definition of

“administrative expenses” outlined in the FDIC’s own regulations.16

16 IndyMac Federal needed “data processing services” to service its $184 billion mortgage portfolio to preserve the value of the institution for sale. Thus,


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The FDIC’s regulations identified certain items that do not qualify as

“administrative expenses” – “severance pay claims, golden parachutes and claims

arising from contract repudiations.” 60 Fed. Reg. at 35487 (emphasis added).

This list provides yet further support for MBIA’s interpretation of section

1821(d)(20). Specifically, the FDIC’s regulations do not exclude claims arising

from “non-repudiated” contracts (like the PSAs here), contracts affirmatively

“assumed” by the FDIC (like the PSAs), partially-performed contracts (like the

PSAs) or liability arising from breached contracts (like the liability at issue here).

Plainly, the FDIC could have identified such contracts in its regulations if liability

flowing from such contracts did not constitute “administration expenses” as it did

with respect to repudiated contracts. All of this demonstrates that liability flowing

from contracts that are assumed and not repudiated qualifies as an administrative

expense.

the inclusion of “data processing services” as an example of a category of costs that would qualify as administrative expenses in the FDIC’s regulations only serves to further underscore that liabilities arising from breaches of the PSAs assumed by IndyMac Federal should be treated as administrative expenses. See 12 C.F.R. § 360.4.


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POINT II THE RESOLUTION OF A NEW BANK, LIKE INDYMAC FEDERAL, SHOULD NOT RESULT IN A NO VALUE DETERMINATION THAT AVOIDS BREACH OF CONTRACT CLAIMS ON PRUDENTIAL MOOTNESS GROUNDS

The district court’s reliance on prudential mootness to dismiss

MBIA’s claims cannot be reconciled with FDIC Corporate’s statutory obligation

under section 1821(m)(11)-(13) to fund IndyMac Federal’s losses, including its

liability to MBIA arising out of FDIC Conservator’s breaches of the PSAs.17

There is no dispute that IndyMac Federal was created as a “new bank”

in accordance with the FDIC’s authority under sections 1821(d)(2)(F) and

1821(m). See Memorandum of Points and Authorities in Support of FDIC

Receiver’s Motion to Dismiss at 7 (citing OTS Order No. 2008-24 (July 11, 2008)

at 2-4) (JA__). Section 1821(d)(2)(F)(ii) allowed the FDIC, as receiver, to

organize a new national bank under subsection (m). See Statement of Facts,

17 Section 1821(m)(13) also provides support for MBIA’s construction of section 1821(d)(20). It would make little sense for Congress to have obligated FDIC Corporate to fund IndyMac Federal’s losses and expenses if IndyMac Federal did not have to disburse those funds to pay counterparties. And it would make even less sense for Congress to have crafted a statutory scheme that allowed the same funds paid to the IndyMac Federal conservatorship to be diverted by the subsequent IndyMac Federal receivership back to FDIC Corporate without the conservatorship’s administrative expenses and other losses being paid first.


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Section A.3, supra. Subsection (m), entitled “New Banks” clearly establishes in a

subpart entitled “Losses,” that:

[i]f any new bank, during the period it continues its status as such, sustains any losses with respect to which it is not effectively protected except by reason of being an insured bank, the Corporation shall furnish to it additional funds in the amount of such losses.

12 U.S.C. § 1821(m)(13).18

By virtue of section 1821(m)(13), Congress explicitly directed FDIC

Corporate to stand behind “new banks” that it created, and to pay for losses

suffered while operating the bank, including losses arising out of contractual

obligations that are not repudiated. Consistent with this statutory obligation, on

April 3, 2009, the FDIC told the Federal Reserve that its message to IndyMac

Federal’s concerned counterparties was that “the government stands behind this

bank.” (JA_).

Here, FDIC Corporate has a still-unfulfilled statutory obligation to

fund losses suffered by IndyMac Federal during FDIC Conservator’s tenure.

18 As noted above, shortly after IndyMac failed, Congress altered sub-section 1821(m) by, among other things, replacing the phrase “new bank” with “depository institution” to address certain substantive changes made to the statute. See this Brief at n.4, supra. The analysis of, and references to, section 1821(m) in this brief concern the statutory language in effect at the time IndyMac Federal was created as a “new bank.”


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Those losses include liability to MBIA for breaching the PSAs.19 If FDIC

Corporate had funded FDIC Conservator’s losses, including its liability to MBIA,

as required by section 1821(m)(13), then FDIC Conservator would have had

sufficient funds to pay MBIA, and the district court’s prudential mootness holding

would be demonstrably incorrect.

Despite considering section 1821(m), the district court erroneously

concluded that FDIC Corporate could not be responsible for funding FDIC

Conservator’s liability to MBIA because section 1821(i)(2) limits any recovery by

MBIA to the assets of FDIC Receiver. 816 F. Supp. 2d 106.

Section 1821(i)(2) provides:

The maximum liability of the Corporation, acting as receiver or in any other capacity, to any person having a claim against the receiver or the insured depository institution for which such receiver is appointed shall equal the amount such claimant would have received if the Corporation had liquidated the assets and liabilities of such institution without exercising the Corporation’s authority under subsection (n) of this section or section 1823 of this title.

12 U.S.C. § 1821(i)(2).

However, the assets of IndyMac Federal necessarily included a

receivable based on FDIC Corporate’s unpaid statutory obligation to provide

19 Importantly, section 1821(m)(11) makes no distinction between “administrative expenses,” as the district court has narrowly construed that term, or losses arising from financial contracts like the PSAs.


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funding to IndyMac Federal pursuant to section 1821(m)(13) for losses attributable

to liability from breaches of the PSAs. That valuable asset should have passed to

FDIC Receiver, and should still be there. The district court’s analysis failed to

account for this asset passing to FDIC Receiver.

The district court also reasoned that FDIC Corporate’s funding

obligations under section 1821(m) ended when FDIC Receiver was appointed. 816

F. Supp. 2d 106. From this premise, the district court concluded that it was too late

for MBIA to look to FDIC Corporate to fund IndyMac Federal’s liabilities to

MBIA. Again, this fails to account for the fact that the expense and loss that FDIC

Corporate was statutorily obligated to fund occurred during the conservatorship.

That is what is relevant to trigger FDIC Corporate’s statutory funding obligation.

Moreover, the text of section 1821(m) itself clearly demonstrates that when the

“new bank” is wound down, the FDIC must pay its remaining debts. See 12

U.S.C. § 1821(m)(18).

In sum, there is no inconsistency between the FDIC’s obligation under

section 1821(m)(13) and the limitation on liability embodied in section 1821(i)(2).

Had FDIC Corporate satisfied its statutory obligation in section 1821(m)(13) to

furnish funds to cover IndyMac Federal’s losses during the period of the

conservatorship, those additional funds would have been assets of the IndyMac

Federal receivership and available for distribution to claimants like MBIA.


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Similarly, had the FDIC taken this funding obligation into account, it would not

have issued the No Value Determination.

The district court was willing to overlook FDIC Corporate’s

abdication of its statutory obligations, and conclude that it was too late to do

anything about it. This Court should not allow the FDIC to ignore its statutory

responsibilities with no recourse to those affected, like MBIA.20

POINT III MBIA’S CLAIMS AGAINST FDIC CORPORATE ARE NOT BARRED BY SECTION 1821(d)(10)(B)

The district court erroneously dismissed MBIA’s claims against FDIC

Corporate on the ground that they are barred by section 1821(d)(10)(B). 816 F.

Supp. 2d at 104-05. Section 1821(d)(10)(B) provides:

(B) Payment of Dividends On Claims: The receiver may, in the receiver’s sole discretion, pay dividends on proved claims at any time, and no liability shall attach to the Corporation (in such Corporation’s corporate capacity or as receiver), by reason of any such payment, for failure to pay dividends to a claimant whose claim is not proved at any time of any such payment.

12 U.S.C. § 1821(d)(10)(B).

20 Notably, in section 1821(i), Congress recognized that there would be times when the FDIC could be liable in some capacity other than as receiver. Otherwise, it would not have established “[t]he maximum liability of the Corporation, acting as receiver or in any other capacity.” 12 U.S.C. § 1821(i)(2) (emphasis added).


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The district court misconstrued this provision as providing complete

discretion to FDIC Receiver in connection with resolving claims, and complete

immunity to FDIC Corporate from liability, without regard to whether its conduct

was consistent with FIRREA. 816 F. Supp. 2d at 105.21

In short, FDIC Corporate’s receipt of the proceeds of the sale of

IndyMac Federal’s assets to OneWest is not shielded by section 1821(d)(10)(B).

There is no showing that the alleged payment received by FDIC Corporate was a

“dividend” paid by FDIC Receiver, which is necessary to bring the payment within

the plain meaning of the statute. A dividend is merely a distribution of “excess

cash generated by the disposition of these assets less disposition cost and reserves

met.” (http://www2.fdic.gov/divweb/index.asp). It is not a claim.

It is undisputed that Old IndyMac Receiver made the one and only

“dividend” payment in connection with IndyMac’s resolution – a 50% payment to

uninsured depositors on July 13, 2008. See Henry v. FDIC, 695 F. Supp. 2d 1063,

1068 (C.D. Cal. 2010); http://www2.fdic.gov/divweb/Dividendindex.asp. (last

visited June 1, 2012). IndyMac Federal has never paid a dividend. See id. Hence,

the only payment that arguably qualifies as a “dividend” here is the July 13, 2008,

21 The district court did not address the FDIC’s argument that MBIA had failed to challenge a “final agency action” in its APA challenge. 816 F. Supp. 2d at 105 n.25. The argument, nonetheless, is meritless. See Adams v. Resolution Trust Corp., 927 F.2d 348, 355 n.15 (8th Cir. 1991) (holding no value determination reviewable under APA).


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payment to depositors. Because the OneWest asset sale did not occur until March

2009, FDIC Corporate cannot possibly demonstrate that the funds that it received

from the receivership were part of that dividend payment to depositors. Whatever

payments were made by FDIC Receiver to FDIC Corporate, they surely did not

constitute “dividends.”

Moreover, to conclude that FDIC Corporate’s receipt of the proceeds

of the OneWest sale was insulated from review by section 1821(d)(10)(B) ignores

section 1821(d)(10)(A), which limits the receiver’s discretion to “pay creditor

claims which are allowed by the receiver” only “to the extent funds are available.”

Under the statute, funds cannot be “available” to pay dividends on depositor claims

(or to FDIC subrogated to depositor claims) if administrative expense claims have

not been fully satisfied. As demonstrated above, MBIA has unpaid administrative

expense claims. Because those claims were not satisfied, any payment to FDIC

Corporate was premature and thus not authorized by section 1821(d)(10).

POINT IV MBIA’S CLAIMS FOR DECLARATORY AND INJUNCTIVE RELIEF ARE NOT BARRED BY SECTION 1821(j)

MBIA’s claims for declaratory and injunctive relief are predicated

principally on various instances when the FDIC exceeded its authority, or

otherwise acted contrary to FIRREA and other statutory requirements. See Am.


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Comp. ¶¶ 182-202 (JA__). As demonstrated above, the district court erred when it

concluded that FDIC Conservator’s liability flowing from its breach of the PSAs

did not constitute administrative expenses that FDIC Receiver should have paid to

MBIA pro rata along with other administrative expenses, ahead of depositor

claims. A correct reading of the relevant statutes makes clear that the FDIC acted

contrary to, and well beyond, its powers. To ensure that MBIA has a remedy to

address the FDIC’s disregard for its statutory obligations, this Court should

reinstate MBIA’s claims for declaratory and injunctive relief.

Section 1821(j) prevents courts from “tak[ing] any action, except at

the request of the Board of Directors by regulation or order, to restrain or affect the

exercise of powers or functions of the Corporation as a conservator or a receiver.”

Importantly, this statutory obstacle to injunctive relief does not apply “when the

FDIC has acted or proposes to act beyond, or contrary to, its statutorily prescribed,

constitutionally permitted, powers or functions.” National Trust for Historic Pres.

v. FDIC, 995 F.2d 238, 239-40, vacated, 5 F.3d 567 (D.C. Cir. 1993), reinstated in

relevant part, 21 F.3d 469 (D.C. Cir. 1994).

Here, MBIA’s claims for declaratory and injunctive relief are

predicated on allegations that the FDIC acted beyond, or contrary to, its statutorily

prescribed powers. Specifically, MBIA alleges the following:


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FDIC Receiver ignored section 1821(d)(20) by not treating MBIA’s claims as “administrative expenses” during the claims process.

FDIC Conservator did not properly dispose of the proceeds from the sale of assets to OneWest.

FDIC Receiver did not repudiate the INDS 2007-1 PSA in a reasonable time as required by FIRREA.

With respect to the first two of these claims, to the extent liability

arising from MBIA’s damages claims constitutes “administrative expenses,” then

the FDIC’s actions were ultra vires, and declaratory relief is appropriate. First

Hartford Partners II v. FDIC, No. 93 Civ. 0933, 1993 U.S. Dist. LEXIS 14651, at

**9-10 (S.D.N.Y. Oct. 15, 1993).

With respect to MBIA’s repudiation claim, the district court failed to

address the relevant question: did the FDIC wait too long to repudiate the INDS

2007-1 PSA? FIRREA provides that a conservator or receiver must repudiate a

contract “within a reasonable period.” 12 U.S.C. § 1821(e)(2); Olympic Towers

Assocs. v. Goldome Bank, No. 92-cv-0267E, 1995 U.S. Dist. LEXIS 6028, at *20

(W.D.N.Y. Mar. 21, 1995) (“reasonable” pursuant to section 1821(e)(2) “depends

on the circumstances of the case, but as a benchmark courts have used the 90-day

period Congress initially proposed when drafting the FIRREA”).

The purported repudiation of the INDS 2007-1 PSA was ultra vires

since it occurred almost nine months after the appointment of FDIC Conservator


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and the express assumption of the INDS 2007-1 PSA under the PAA. Because the

purported repudiation was untimely, the district court should have concluded that

the INDS 2007-1 PSA remained a valid obligation of FDIC Conservator, and that

liability flowing from its breach was an administrative expense pursuant to section

1821(d)(20) that should have been paid to MBIA on a priority basis.22

In sum, if this Court concludes that FDIC Conservator’s liability for

breaching the PSAs should have been treated as administrative expenses, or that

FDIC Corporate had an obligation to fund IndyMac Federal’s losses pursuant to

section 1821(m)(13), then MBIA’s claims seeking declaratory and injunctive relief

should be allowed, as they are necessary to provide MBIA with a remedy to

address the FDIC’s failure to fulfill its statutory obligations.

22 Even if the FDIC’s repudiation of the INDS 2007-1 PSA was timely, its repudiation is only effective as of the date of repudiation – March 19, 2009. The INDS 2007-1 PSA is a “Qualified Financial Contract.” See Deutsche Bank, 784 F. Supp. 2d. at 1154. Damages for repudiation of a QFC are determined as of the date of disaffirmance or repudiation. See 12 U.S.C. § 1821(e)(3)(A)(ii)(II). The repudiation of a QFC may not be made retroactively to the date of the appointment of a conservator or receiver. Id. Accordingly, liabilities arising from contractual breaches that occurred during the FDIC conservatorship of IndyMac Federal (July 11, 2008 through March 19, 2009), are administrative expenses of FDIC Receiver. 12 U.S.C. § 1821(d)(20).


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CONCLUSION

For these reasons, the district court’s order and judgment dismissing

the Amended Complaint should be vacated, and the case should be remanded for

further proceedings.

Dated: Washington D.C. June 4, 2012


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Respectfully submitted,

CADWALADER, WICKERSHAM & TAFT LLP

By: [s] Howard R. Hawkins, Jr. Howard R. Hawkins, Jr.

D.C. Circuit Bar No. 53922 Jason Jurgens (admission pending) Cadwalader, Wickersham & Taft, LLP One World Financial Center New York, New York 10281 Tel: (212) 504-6000 Fax: (212) 506-6666 [email protected] [email protected] David F. Williams D.C. Bar No. 298380 D.C. Circuit Bar No. 33342 Geoffrey Gettinger D.C. Bar No. 477533 D.C. Circuit Bar No. 53843 Cadwalader, Wickersham & Taft, LLP 700 Sixth Street, N.W. Washington, D.C. 20001 Tel: (202) 862-2200 Fax: (202) 862-2400 [email protected] [email protected]

Attorneys for Plaintiff-Appellant MBIA Insurance Corporation


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CERTIFICATE OF COMPLIANCE

I hereby certify that:

1. This brief contains 13,989 words, as calculated under Fed. R. App.

P. 32(a)(7)(B) and Circuit Rule 32(a)(1).

2. This brief complies with the typeface requirements of Fed. R. App.

P. 32(a)(5) and the type-style requirements of Fed. R. App. P. 32(a)(6) because it

has been prepared in a proportionally spaced typeface using Microsoft Word 2010

in Times New Roman, 14-point font.

[s] Howard R. Hawkins, Jr.__

Howard R. Hawkins, Jr.


ADDENDUM OF STATUTES AND REGULATIONS1

1 Certain sections of 12 U.S.C. § 1821(d), (e) and (m) were amended by Pub. L. 110-289 which became effective on July 30, 2008. Accordingly, this brief and statutory appendix reflect the version of these statutory sections that were effective on July 11, 2008, the date of formation for IndyMac Federal.


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STATUTES AND REGULATIONS 12 U.S.C. § 1821(d) ..................................................................................................................... A2 12 U.S.C. § 1821(e) ................................................................................................................... A10 12 U.S.C. § 1821(i) .................................................................................................................... A27 12 U.S.C. § 1821(j) .................................................................................................................... A28 12 U.S.C. § 1821(m) .................................................................................................................. A29 12 C.F.R. § 360.4………………………………………………………………………………A31 11 U.S.C. § 365………………………………………………………………………………...A32


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12 U.S.C. § 1821(d): Powers and duties of Corporation as conservator or receiver

(2) General powers

(A) Successor to institution

The Corporation shall, as conservator or receiver, and by operation of law, succeed to—

(i) all rights, titles, powers, and privileges of the insured depository institution, and of any stockholder, member, accountholder, depositor, officer, or director of such institution with respect to the institution and the assets of the institution; and

(ii) title to the books, records, and assets of any previous conservator or other legal custodian of such institution.

(B) Operate the institution

The Corporation may (subject to the provisions of section 1831q of this title), as conservator or receiver—

(i) take over the assets of and operate the insured depository institution with all the powers of the members or shareholders, the directors, and the officers of the institution and conduct all business of the institution;

(ii) collect all obligations and money due the institution;

(iii) perform all functions of the institution in the name of the institution which are consistent with the appointment as conservator or receiver; and

(iv) preserve and conserve the assets and property of such institution.

(C) Functions of institution’s officers, directors, and shareholders

The Corporation may, by regulation or order, provide for the exercise of any function by any member or stockholder, director, or officer of any insured depository institution for which the Corporation has been appointed conservator or receiver.


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(D) Powers as conservator

The Corporation may, as conservator, take such action as may be—

(i) necessary to put the insured depository institution in a sound and solvent condition; and

(ii) appropriate to carry on the business of the institution and preserve and conserve the assets and property of the institution.

(E) Additional powers as receiver

The Corporation may (subject to the provisions of section 1831q of this title), as receiver, place the insured depository institution in liquidation and proceed to realize upon the assets of the institution, having due regard to the conditions of credit in the locality.

(F) Organization of new institutions

The Corporation may, as receiver

(i) with respect to savings associations and by application to the Director of the Office of Thrift Supervision, organize a new Federal savings association to take over such assets or such liabilities as the Corporation may determine to be appropriate; and

(ii) with respect to any insured bank, organize a new national bank under subsection (m) of this section or a bridge bank under subsection (n) of this section.

(G) Merger; transfer of assets and liabilities

(i) In general

The Corporation may, as conservator or receiver—

(I) merge the insured depository institution with another insured depository institution; or

(II) subject to clause (ii), transfer any asset or liability of the institution in default (including assets and liabilities associated with any trust business) without any approval, assignment, or consent with respect to such transfer.


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(ii) Approval by appropriate Federal banking agency No transfer described in clause (i)(II) may be made to another depository institution (other than a new bank or bridge bank established pursuant to subsection (m) or (n) of this section) without the approval of the appropriate Federal banking agency for such institution.

(H) Payment of valid obligations

The Corporation, as conservator or receiver, shall pay all valid obligations of the insured depository institution in accordance with the prescriptions and limitations of this chapter.

(I) Subpoena authority

(i) In general The Corporation may, as conservator, receiver, or exclusive manager and for purposes of carrying out any power, authority, or duty with respect to an insured depository institution (including determining any claim against the institution and determining and realizing upon any asset of any person in the course of collecting money due the institution), exercise any power established under section 1818 (n) of this title, and the provisions of such section shall apply with respect to the exercise of any such power under this subparagraph in the same manner as such provisions apply under such section.

(ii) Authority of Board of Directors A subpoena or subpoena duces tecum may be issued under clause (i) only by, or with the written approval of, the Board of Directors or their designees (or, in the case of a subpoena or subpoena duces tecum issued by the Resolution Trust Corporation under this subparagraph and section 1441a (b)(4) [2] of this title, only by, or with the written approval of, the Board of Directors of such Corporation or their designees).

(iii) Rule of construction This subsection shall not be construed as limiting any rights that the Corporation, in any capacity, might otherwise have under section 1820 (c) of this title.

(J) Incidental powers

The Corporation may, as conservator or receiver—


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(i) exercise all powers and authorities specifically granted to conservators or receivers, respectively, under this chapter and such incidental powers as shall be necessary to carry out such powers; and

(ii) take any action authorized by this chapter,

which the Corporation determines is in the best interests of the depository institution, its depositors, or the Corporation.

(K) Utilization of private sector

In carrying out its responsibilities in the management and disposition of assets from insured depository institutions, as conservator, receiver, or in its corporate capacity, the Corporation shall utilize the services of private persons, including real estate and loan portfolio asset management, property management, auction marketing, legal, and brokerage services, only if such services are available in the private sector and the Corporation determines utilization of such services is the most practicable, efficient, and cost effective.

(3) Authority of receiver to determine claims

(A) In general

The Corporation may, as receiver, determine claims in accordance with the requirements of this subsection and regulations prescribed under paragraph (4).

(B) Notice requirements

The receiver, in any case involving the liquidation or winding up of the affairs of a closed depository institution, shall—

(i) promptly publish a notice to the depository institution’s creditors to present their claims, together with proof, to the receiver by a date specified in the notice which shall be not less than 90 days after the publication of such notice; and

(ii) republish such notice approximately 1 month and 2 months, respectively, after the publication under clause (i).

(C) Mailing required


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The receiver shall mail a notice similar to the notice published under subparagraph (B)(i) at the time of such publication to any creditor shown on the institution’s books—

(i) at the creditor’s last address appearing in such books; or

(ii) upon discovery of the name and address of a claimant not appearing on the institution’s books within 30 days after the discovery of such name and address.

(4) Rulemaking authority relating to determination of claims

(A) In general

The Corporation may prescribe regulations regarding the allowance or disallowance of claims by the receiver and providing for administrative determination of claims and review of such determination. (B) Final settlement payment procedure

(i) In general In the handling of receiverships of insured depository institutions, to maintain essential liquidity and to prevent financial disruption, the Corporation may, after the declaration of an institution’s insolvency, settle all uninsured and unsecured claims on the receivership with a final settlement payment which shall constitute full payment and disposition of the Corporation’s obligations to such claimants. (ii) Final settlement payment For purposes of clause (i), a final settlement payment shall be payment of an amount equal to the product of the final settlement payment rate and the amount of the uninsured and unsecured claim on the receivership; and (iii) Final settlement payment rate For purposes of clause (ii), the final settlement payment rate shall be a percentage rate reflecting an average of the Corporation’s receivership recovery experience, determined by the Corporation in such a way that over such time period as the Corporation may deem appropriate, the Corporation in total will receive no more or less than it would have received in total as a general creditor standing in the place of insured depositors in each specific receivership.


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(iv) Corporation authority The Corporation may undertake such supervisory actions and promulgate such regulations as may be necessary to assure that the requirements of this section can be implemented with respect to each insured depository institution in the event of its insolvency.

(10) Payment of claims

(A) In general

The receiver may, in the receiver’s discretion and to the extent funds are available, pay creditor claims which are allowed by the receiver, approved by the Corporation pursuant to a final determination pursuant to paragraph (7) or (8), or determined by the final judgment of any court of competent jurisdiction in such manner and amounts as are authorized under this chapter.

(B) Payment of dividends on claims

The receiver may, in the receiver’s sole discretion, pay dividends on proved claims at any time, and no liability shall attach to the Corporation (in such Corporation’s corporate capacity or as receiver), by reason of any such payment, for failure to pay dividends to a claimant whose claim is not proved at the time of any such payment.

(C) Rulemaking authority of Corporation

The Corporation may prescribe such rules, including definitions of terms, as it deems appropriate to establish a single uniform interest rate for or to make payments of post insolvency interest to creditors holding proven claims against the receivership estates of insured Federal or State depository institutions following satisfaction by the receiver of the principal amount of all creditor claims.

(11) Depositor preference

(A) In general

Subject to section 1815 (e)(2)(C) of this title, amounts realized from the liquidation or other resolution of any insured depository institution by any


A-8

receiver appointed for such institution shall be distributed to pay claims (other than secured claims to the extent of any such security) in the following order of priority:

(i) Administrative expenses of the receiver.

(ii) Any deposit liability of the institution.

(iii) Any other general or senior liability of the institution (which is not a liability described in clause (iv) or (v)).

(iv) Any obligation subordinated to depositors or general creditors (which is not an obligation described in clause (v)).

(v) Any obligation to shareholders or members arising as a result of their status as shareholders or members (including any depository institution holding company or any shareholder or creditor of such company).

(B) Effect on State law

(i) In general The provisions of subparagraph (A) shall not supersede the law of any State except to the extent such law is inconsistent with the provisions of such subparagraph, and then only to the extent of the inconsistency.

(ii) Procedure for determination of inconsistency Upon the Corporation’s own motion or upon the request of any person with a claim described in subparagraph (A) or any State which is submitted to the Corporation in accordance with procedures which the Corporation shall prescribe, the Corporation shall determine whether any provision of the law of any State is inconsistent with any provision of subparagraph (A) and the extent of any such inconsistency.

(iii) Judicial review The final determination of the Corporation under clause (ii) shall be subject to judicial review under chapter 7 of title 5.

(C) Accounting report

Any distribution by the Corporation in connection with any claim described in subparagraph (A)(v) shall be accompanied by the accounting report required under paragraph (15)(B).


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(20) Treatment of claims arising from breach of contracts executed by the receiver or conservator

Notwithstanding any other provision of this subsection, any final and unappealable judgment for monetary damages entered against a receiver or conservator for an insured depository institution for the breach of an agreement executed or approved by such receiver or conservator after the date of its appointment shall be paid as an administrative expense of the receiver or conservator. Nothing in this paragraph shall be construed to limit the power of a receiver or conservator to exercise any rights under contract or law, including to terminate, breach, cancel, or otherwise discontinue such agreement.


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12 U.S.C. § 1821(e): Provisions relating to contracts entered into before appointment of conservator or receiver

(1) Authority to repudiate contracts

In addition to any other rights a conservator or receiver may have, the conservator or receiver for any insured depository institution may disaffirm or repudiate any contract or lease—

(A) to which such institution is a party;

(B) the performance of which the conservator or receiver, in the conservator’s or receiver’s discretion, determines to be burdensome; and

(C) the disaffirmance or repudiation of which the conservator or receiver determines, in the conservator’s or receiver’s discretion, will promote the orderly administration of the institution’s affairs.

(2) Timing of repudiation

The conservator or receiver appointed for any insured depository institution in accordance with subsection (c) of this section shall determine whether or not to exercise the rights of repudiation under this subsection within a reasonable period following such appointment.

(3) Claims for damages for repudiation

(A) In general

Except as otherwise provided in subparagraph (C) and paragraphs (4), (5), and (6), the liability of the conservator or receiver for the disaffirmance or repudiation of any contract pursuant to paragraph (1) shall be—

(i) limited to actual direct compensatory damages; and

(ii) determined as of—

(I) the date of the appointment of the conservator or receiver; or


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(II) in the case of any contract or agreement referred to in paragraph (8), the date of the disaffirmance or repudiation of such contract or agreement.

(B) No liability for other damages

For purposes of subparagraph (A), the term “actual direct compensatory damages” does not include—

(i) punitive or exemplary damages;

(ii) damages for lost profits or opportunity; or

(iii) damages for pain and suffering.

(C) Measure of damages for repudiation of financial contracts

In the case of any qualified financial contract or agreement to which paragraph (8) applies, compensatory damages shall be—

(i) deemed to include normal and reasonable costs of cover or other reasonable measures of damages utilized in the industries for such contract and agreement claims; and

(ii) paid in accordance with this subsection and subsection (i) of this section except as otherwise specifically provided in this section.

(7) Provisions applicable to service contracts

(A) Services performed before appointment

In the case of any contract for services between any person and any insured depository institution for which the Corporation has been appointed conservator or receiver, any claim of such person for services performed before the appointment of the conservator or the receiver shall be—

(i) a claim to be paid in accordance with subsections (d) and (i) of this section; and

(ii) deemed to have arisen as of the date the conservator or receiver was appointed.


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(B) Services performed after appointment and prior to repudiation

If, in the case of any contract for services described in subparagraph (A), the conservator or receiver accepts performance by the other person before the conservator or receiver makes any determination to exercise the right of repudiation of such contract under this section—

(i) the other party shall be paid under the terms of the contract for the services performed; and

(ii) the amount of such payment shall be treated as an administrative expense of the conservatorship or receivership.

(C) Acceptance of performance no bar to subsequent repudiation

The acceptance by any conservator or receiver of services referred to in subparagraph (B) in connection with a contract described in such subparagraph shall not affect the right of the conservator or receiver to repudiate such contract under this section at any time after such performance.

(8) Certain qualified financial contracts

(A) Rights of parties to contracts

Subject to paragraphs (9) and (10) of this subsection and notwithstanding any other provision of this chapter (other than subsection (d)(9) of this section and section 1823 (e) of this title), any other Federal law, or the law of any State, no person shall be stayed or prohibited from exercising—

(i) any right such person has to cause the termination, liquidation, or acceleration of any qualified financial contract with an insured depository institution which arises upon the appointment of the Corporation as receiver for such institution at any time after such appointment;

(ii) any right under any security agreement or arrangement or other credit enhancement related to one or more qualified financial contracts described in clause (i); [3]

(iii) any right to offset or net out any termination value, payment amount, or other transfer obligation arising under or in


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connection with 1 or more contracts and agreements described in clause (i), including any master agreement for such contracts or agreements.

(B) Applicability of other provisions

Subsection (d)(12) of this section shall apply in the case of any judicial action or proceeding brought against any receiver referred to in subparagraph (A), or the insured depository institution for which such receiver was appointed, by any party to a contract or agreement described in subparagraph (A)(i) with such institution.

(C) Certain transfers not avoidable

(i) In general Notwithstanding paragraph (11), section 91 of this title or any other Federal or State law relating to the avoidance of preferential or fraudulent transfers, the Corporation, whether acting as such or as conservator or receiver of an insured depository institution, may not avoid any transfer of money or other property in connection with any qualified financial contract with an insured depository institution.

(ii) Exception for certain transfers Clause (i) shall not apply to any transfer of money or other property in connection with any qualified financial contract with an insured depository institution if the Corporation determines that the transferee had actual intent to hinder, delay, or defraud such institution, the creditors of such institution, or any conservator or receiver appointed for such institution.

(D) Certain contracts and agreements defined

For purposes of this subsection, the following definitions shall apply:

(i) Qualified financial contract The term “qualified financial contract” means any securities contract, commodity contract, forward contract, repurchase agreement, swap agreement, and any similar agreement that the Corporation determines by regulation, resolution, or order to be a qualified financial contract for purposes of this paragraph.

(ii) Securities contract The term “securities contract”—


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(I) means a contract for the purchase, sale, or loan of a security, a certificate of deposit, a mortgage loan, any interest in a mortgage loan, a group or index of securities, certificates of deposit, or mortgage loans or interests therein (including any interest therein or based on the value thereof) or any option on any of the foregoing, including any option to purchase or sell any such security, certificate of deposit, mortgage loan, interest, group or index, or option, and including any repurchase or reverse repurchase transaction on any such security, certificate of deposit, mortgage loan, interest, group or index, or option (whether or not such repurchase or reverse repurchase transaction is a “repurchase agreement”, as defined in clause (v));

(II) does not include any purchase, sale, or repurchase obligation under a participation in a commercial mortgage loan unless the Corporation determines by regulation, resolution, or order to include any such agreement within the meaning of such term;

(III) means any option entered into on a national securities exchange relating to foreign currencies;

(IV) means the guarantee (including by novation) by or to any securities clearing agency of any settlement of cash, securities, certificates of deposit, mortgage loans or interests therein, group or index of securities, certificates of deposit, or mortgage loans or interests therein (including any interest therein or based on the value thereof) or option on any of the foregoing, including any option to purchase or sell any such security, certificate of deposit, mortgage loan, interest, group or index, or option (whether or not such settlement is in connection with any agreement or transaction referred to in subclauses (I) through (XII) (other than subclause (II)); [4]

(V) means any margin loan;

(VI) means any extension of credit for the clearance or settlement of securities transactions;


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(VII) means any loan transaction coupled with a securities collar transaction, any prepaid securities forward transaction, or any total return swap transaction coupled with a securities sale transaction;

(VIII) means any other agreement or transaction that is similar to any agreement or transaction referred to in this clause;

(IX) means any combination of the agreements or transactions referred to in this clause;

(X) means any option to enter into any agreement or transaction referred to in this clause;

(XI) means a master agreement that provides for an agreement or transaction referred to in subclause (I), (III), (IV), (V), (VI), (VII), (VIII), (IX), or (X), together with all supplements to any such master agreement, without regard to whether the master agreement provides for an agreement or transaction that is not a securities contract under this clause, except that the master agreement shall be considered to be a securities contract under this clause only with respect to each agreement or transaction under the master agreement that is referred to in subclause (I), (III), (IV), (V), (VI), (VII), (VIII), (IX), or (X); and

(XII) means any security agreement or arrangement or other credit enhancement related to any agreement or transaction referred to in this clause, including any guarantee or reimbursement obligation in connection with any agreement or transaction referred to in this clause.

(iii) Commodity contract The term “commodity contract” means—

(I) with respect to a futures commission merchant, a contract for the purchase or sale of a commodity for future delivery on, or subject to the rules of, a contract market or board of trade;


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(II) with respect to a foreign futures commission merchant, a foreign future;

(III) with respect to a leverage transaction merchant, a leverage transaction;

(IV) with respect to a clearing organization, a contract for the purchase or sale of a commodity for future delivery on, or subject to the rules of, a contract market or board of trade that is cleared by such clearing organization, or commodity option traded on, or subject to the rules of, a contract market or board of trade that is cleared by such clearing organization;

(V) with respect to a commodity options dealer, a commodity option;

(VI) any other agreement or transaction that is similar to any agreement or transaction referred to in this clause;

(VII) any combination of the agreements or transactions referred to in this clause;

(VIII) any option to enter into any agreement or transaction referred to in this clause;

(IX) a master agreement that provides for an agreement or transaction referred to in subclause (I), (II), (III), (IV), (V), (VI), (VII), or (VIII), together with all supplements to any such master agreement, without regard to whether the master agreement provides for an agreement or transaction that is not a commodity contract under this clause, except that the master agreement shall be considered to be a commodity contract under this clause only with respect to each agreement or transaction under the master agreement that is referred to in subclause (I), (II), (III), (IV), (V), (VI), (VII), or (VIII); or

(X) any security agreement or arrangement or other credit enhancement related to any agreement or transaction referred to in this clause, including any guarantee or reimbursement obligation in connection


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with any agreement or transaction referred to in this clause.

(iv) Forward contract The term “forward contract” means—

(I) a contract (other than a commodity contract) for the purchase, sale, or transfer of a commodity or any similar good, article, service, right, or interest which is presently or in the future becomes the subject of dealing in the forward contract trade, or product or byproduct thereof, with a maturity date more than 2 days after the date the contract is entered into, including,[5] a repurchase or reverse repurchase transaction (whether or not such repurchase or reverse repurchase transaction is a “repurchase agreement”, as defined in clause (v)), consignment, lease, swap, hedge transaction, deposit, loan, option, allocated transaction, unallocated transaction, or any other similar agreement;

(II) any combination of agreements or transactions referred to in subclauses (I) and (III);

(III) any option to enter into any agreement or transaction referred to in subclause (I) or (II);

(IV) a master agreement that provides for an agreement or transaction referred to in subclauses (I), (II), or (III), together with all supplements to any such master agreement, without regard to whether the master agreement provides for an agreement or transaction that is not a forward contract under this clause, except that the master agreement shall be considered to be a forward contract under this clause only with respect to each agreement or transaction under the master agreement that is referred to in subclause (I), (II), or (III); or

(V) any security agreement or arrangement or other credit enhancement related to any agreement or transaction referred to in subclause (I), (II), (III), or (IV), including any guarantee or reimbursement obligation in


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connection with any agreement or transaction referred to in any such subclause.

(v) Repurchase agreement The term “repurchase agreement” (which definition also applies to a reverse repurchase agreement)—

(I) means an agreement, including related terms, which provides for the transfer of one or more certificates of deposit, mortgage-related securities (as such term is defined in the Securities Exchange Act of 1934 [15 U.S.C. 78a et seq.]), mortgage loans, interests in mortgage-related securities or mortgage loans, eligible bankers’ acceptances, qualified foreign government securities or securities that are direct obligations of, or that are fully guaranteed by, the United States or any agency of the United States against the transfer of funds by the transferee of such certificates of deposit, eligible bankers’ acceptances, securities, mortgage loans, or interests with a simultaneous agreement by such transferee to transfer to the transferor thereof certificates of deposit, eligible bankers’ acceptances, securities, mortgage loans, or interests as described above, at a date certain not later than 1 year after such transfers or on demand, against the transfer of funds, or any other similar agreement;

(II) does not include any repurchase obligation under a participation in a commercial mortgage loan unless the Corporation determines by regulation, resolution, or order to include any such participation within the meaning of such term;

(III) means any combination of agreements or transactions referred to in subclauses (I) and (IV);

(IV) means any option to enter into any agreement or transaction referred to in subclause (I) or (III);

(V) means a master agreement that provides for an agreement or transaction referred to in subclause (I),


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(III), or (IV), together with all supplements to any such master agreement, without regard to whether the master agreement provides for an agreement or transaction that is not a repurchase agreement under this clause, except that the master agreement shall be considered to be a repurchase agreement under this subclause only with respect to each agreement or transaction under the master agreement that is referred to in subclause (I), (III), or (IV); and

(VI) means any security agreement or arrangement or other credit enhancement related to any agreement or transaction referred to in subclause (I), (III), (IV), or (V), including any guarantee or reimbursement obligation in connection with any agreement or transaction referred to in any such subclause.

For purposes of this clause, the term “qualified foreign government security” means a security that is a direct obligation of, or that is fully guaranteed by, the central government of a member of the Organization for Economic Cooperation and Development (as determined by regulation or order adopted by the appropriate Federal banking authority).

(vi) Swap agreement The term “swap agreement” means—

(I) any agreement, including the terms and conditions incorporated by reference in any such agreement, which is an interest rate swap, option, future, or forward agreement, including a rate floor, rate cap, rate collar, cross-currency rate swap, and basis swap; a spot, same day-tomorrow, tomorrow-next, forward, or other foreign exchange, precious metals, or other commodity agreement; a currency swap, option, future, or forward agreement; an equity index or equity swap, option, future, or forward agreement; a debt index or debt swap, option, future, or forward agreement; a total return, credit spread or credit swap, option, future, or forward agreement; a commodity index or commodity swap, option, future, or forward agreement; weather swap, option, future, or forward agreement; an emissions swap,


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option, future, or forward agreement; or an inflation swap, option, future, or forward agreement;

(II) any agreement or transaction that is similar to any other agreement or transaction referred to in this clause and that is of a type that has been, is presently, or in the future becomes, the subject of recurrent dealings in the swap or other derivatives markets (including terms and conditions incorporated by reference in such agreement) and that is a forward, swap, future, option, or spot transaction on one or more rates, currencies, commodities, equity securities or other equity instruments, debt securities or other debt instruments, quantitative measures associated with an occurrence, extent of an occurrence, or contingency associated with a financial, commercial, or economic consequence, or economic or financial indices or measures of economic or financial risk or value;

(III) any combination of agreements or transactions referred to in this clause;

(IV) any option to enter into any agreement or transaction referred to in this clause;

(V) a master agreement that provides for an agreement or transaction referred to in subclause (I), (II), (III), or (IV), together with all supplements to any such master agreement, without regard to whether the master agreement contains an agreement or transaction that is not a swap agreement under this clause, except that the master agreement shall be considered to be a swap agreement under this clause only with respect to each agreement or transaction under the master agreement that is referred to in subclause (I), (II), (III), or (IV); and

(VI) any security agreement or arrangement or other credit enhancement related to any agreements or transactions referred to in subclause (I), (II), (III), (IV), or (V), including any guarantee or reimbursement


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obligation in connection with any agreement or transaction referred to in any such subclause.

Such term is applicable for purposes of this subsection only and shall not be construed or applied so as to challenge or affect the characterization, definition, or treatment of any swap agreement under any other statute, regulation, or rule, including the Gramm-Leach-Bliley Act, the Legal Certainty for Bank Products Act of 2000, the securities laws (as such term is defined in section 3(a)(47) of the Securities Exchange Act of 1934) and the Commodity Exchange Act.

(vii) Treatment of master agreement as one agreement Any master agreement for any contract or agreement described in any preceding clause of this subparagraph (or any master agreement for such master agreement or agreements), together with all supplements to such master agreement, shall be treated as a single agreement and a single qualified financial contract. If a master agreement contains provisions relating to agreements or transactions that are not themselves qualified financial contracts, the master agreement shall be deemed to be a qualified financial contract only with respect to those transactions that are themselves qualified financial contracts.

(viii) Transfer The term “transfer” means every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with property or with an interest in property, including retention of title as a security interest and foreclosure of the depository institution’s equity of redemption.

(ix) Person The term “person” includes any governmental entity in addition to any entity included in the definition of such term in section 1 of title 1.

(E) Certain protections in event of appointment of conservator

Notwithstanding any other provision of this chapter (other than subsections (d)(9) and (e)(10) of this section, and section 1823 (e) of this title), any other Federal law, or the law of any State, no person shall be stayed or prohibited from exercising—


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(i) any right such person has to cause the termination, liquidation, or acceleration of any qualified financial contract with a depository institution in a conservatorship based upon a default under such financial contract which is enforceable under applicable noninsolvency law;

(ii) any right under any security agreement or arrangement or other credit enhancement related to one or more qualified financial contracts described in clause (i);

(iii) any right to offset or net out any termination values, payment amounts, or other transfer obligations arising under or in connection with such qualified financial contracts.

(F) Clarification

No provision of law shall be construed as limiting the right or power of the Corporation, or authorizing any court or agency to limit or delay, in any manner, the right or power of the Corporation to transfer any qualified financial contract in accordance with paragraphs (9) and (10) of this subsection or to disaffirm or repudiate any such contract in accordance with subsection (e)(1) of this section.

(G) Walkaway clauses not effective

(i) In general Notwithstanding the provisions of subparagraphs (A) and (E), and sections 4403 and 4404 of this title, no walkaway clause shall be enforceable in a qualified financial contract of an insured depository institution in default.

(ii) Limited suspension of certain obligations In the case of a qualified financial contract referred to in clause (i), any payment or delivery obligations otherwise due from a party pursuant to the qualified financial contract shall be suspended from the time the receiver is appointed until the earlier of—

(I) the time such party receives notice that such contract has been transferred pursuant to subparagraph (A); or

(II) 5:00 p.m. (eastern time) on the business day following the date of the appointment of the receiver.


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(iii) Walkaway clause defined For purposes of this subparagraph, the term “walkaway clause” means any provision in a qualified financial contract that suspends, conditions, or extinguishes a payment obligation of a party, in whole or in part, or does not create a payment obligation of a party that would otherwise exist, solely because of such party’s status as a nondefaulting party in connection with the insolvency of an insured depository institution that is a party to the contract or the appointment of or the exercise of rights or powers by a conservator or receiver of such depository institution, and not as a result of a party’s exercise of any right to offset, setoff, or net obligations that exist under the contract, any other contract between those parties, or applicable law.

(H) Recordkeeping requirements

The Corporation, in consultation with the appropriate Federal banking agencies, may prescribe regulations requiring more detailed recordkeeping by any insured depository institution with respect to qualified financial contracts (including market valuations) only if such insured depository institution is in a troubled condition (as such term is defined by the Corporation pursuant to section 1831i of this title).

(9) Transfer of qualified financial contracts

(A) In general In making any transfer of assets or liabilities of a depository institution in default which includes any qualified financial contract, the conservator or receiver for such depository institution shall either—

(i) transfer to one financial institution, other than a financial institution for which a conservator, receiver, trustee in bankruptcy, or other legal custodian has been appointed or which is otherwise the subject of a bankruptcy or insolvency proceeding—

(I) all qualified financial contracts between any person or any affiliate of such person and the depository institution in default; (II) all claims of such person or any affiliate of such person against such depository institution under any such contract (other than any


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claim which, under the terms of any such contract, is subordinated to the claims of general unsecured creditors of such institution); (III) all claims of such depository institution against such person or any affiliate of such person under any such contract; and (IV) all property securing or any other credit enhancement for any contract described in subclause (I) or any claim described in subclause (II) or (III) under any such contract; or

(ii) transfer none of the qualified financial contracts, claims, property or other credit enhancement referred to in clause (i) (with respect to such person and any affiliate of such person).

(B) Transfer to foreign bank, foreign financial institution, or branch or agency of a foreign bank or financial institution

In transferring any qualified financial contracts and related claims and property under subparagraph (A)(i), the conservator or receiver for the depository institution shall not make such transfer to a foreign bank, financial institution organized under the laws of a foreign country, or a branch or agency of a foreign bank or financial institution unless, under the law applicable to such bank, financial institution, branch or agency, to the qualified financial contracts, and to any netting contract, any security agreement or arrangement or other credit enhancement related to one or more qualified financial contracts, the contractual rights of the parties to such qualified financial contracts, netting contracts, security agreements or arrangements, or other credit enhancements are enforceable substantially to the same extent as permitted under this section.

(C) Transfer of contracts subject to the rules of a clearing organization

In the event that a conservator or receiver transfers any qualified financial contract and related claims, property, and credit enhancements pursuant to subparagraph (A)(i) and such contract is cleared by or subject to the rules of a clearing organization, the clearing organization shall not be required to accept the transferee as a member by virtue of the transfer.

(D) Definitions


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For purposes of this paragraph, the term “financial institution” means a broker or dealer, a depository institution, a futures commission merchant, or any other institution, as determined by the Corporation by regulation to be a financial institution, and the term “clearing organization” has the same meaning as in section 4402 of this title.

(13) Authority to enforce contracts

(A) In general The conservator or receiver may enforce any contract, other than a director’s or officer’s liability insurance contract or a depository institution bond, entered into by the depository institution notwithstanding any provision of the contract providing for termination, default, acceleration, or exercise of rights upon, or solely by reason of, insolvency or the appointment of or the exercise of rights or powers by a conservator or receiver.

(B) Certain rights not affected No provision of this paragraph may be construed as impairing or affecting any right of the conservator or receiver to enforce or recover under a director’s or officer’s liability insurance contract or depository institution bond under other applicable law.

(C) Consent requirement

(i) In general Except as otherwise provided by this section or section 1825 of this title, no person may exercise any right or power to terminate, accelerate, or declare a default under any contract to which the depository institution is a party, or to obtain possession of or exercise control over any property of the institution or affect any contractual rights of the institution, without the consent of the conservator or receiver, as appropriate, during the 45-day period beginning on the date of the appointment of the conservator, or during the 90-day period beginning on the date of the appointment of the receiver, as applicable. (ii) Certain exceptions No provision of this subparagraph shall apply to a director or officer liability insurance contract or a


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depository institution bond, to the rights of parties to certain qualified financial contracts pursuant to paragraph (8), or to the rights of parties to netting contracts pursuant to subtitle A of title IV of the Federal Deposit Insurance Corporation Improvement Act of 1991 (12 U.S.C. § 4401 et seq.), or shall be construed as permitting the conservator or receiver to fail to comply with otherwise enforceable provisions of such contract. (iii) Rule of construction Nothing in this subparagraph shall be construed to limit or otherwise affect the applicability of title 11.


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12 U.S.C. § 1821(i): Valuation of claims in default

(2) Maximum liability

The maximum liability of the Corporation, acting as receiver or in any other capacity, to any person having a claim against the receiver or the insured depository institution for which such receiver is appointed shall equal the amount such claimant would have received if the Corporation had liquidated the assets and liabilities of such institution without exercising the Corporation’s authority under subsection (n) of this section or section 1823 of this title.


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12 U.S.C. § 1821(j): Limitation on court action

Except as provided in this section, no court may take any action, except at the request of the Board of Directors by regulation or order, to restrain or affect the exercise of powers or functions of the Corporation as a conservator or a receiver.


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12 U.S.C. § 1821(m): New banks

(1) Organization authorized

As soon as possible after the default of an insured bank, the Corporation, if it finds that it is advisable and in the interest of the depositors of the insured bank in default or the public shall organize a new national bank in the same community as the bank in default to assume the insured deposits of such bank in default and otherwise to perform temporarily the functions hereinafter provided for.

(11) Transfer of deposits

(A) Upon the organization of a new bank, the Corporation shall promptly make available to it an amount equal to the estimated insured deposits of such bank in default plus the estimated amount of the expenses of operating the new bank, and shall determine as soon as possible the amount due each depositor for the depositor’s insured deposit in the insured bank in default, and the total expenses of operation of the new bank.

(B) Upon such determination, the amounts so estimated and made available shall be adjusted to conform to the amounts so determined.

(12) Earnings

Earnings of the new bank shall be paid over or credited to the Corporation in such adjustment.

(13) Losses

If any new bank, during the period it continues its status as such, sustains any losses with respect to which it is not effectively protected except by reason of being an insured bank, the Corporation shall furnish to it additional funds in the amount of such losses.

(18) Winding up Unless the capital stock of the new bank is sold or its assets are taken over and its liabilities are assumed by an insured bank as above provided within 2 years after the date of its organization, the Corporation shall wind up the


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affairs of such bank, after giving such notice, if any, as the Comptroller of the Currency, may require, and shall certify to the Comptroller of the Currency, the termination of the new bank. Thereafter the Corporation shall be liable for the obligations of such bank and shall be the owner of its assets.


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12 C.F.R. § 360.4: Administrative expenses.

The priority for administrative expenses of the receiver, as that term isused in section 11(d)(11) of the Act (12 U.S.C. 1821(d)(11), shall include those necessary expenses incurred by the receiver in liquidating or otherwise resolving the affairs of a failed insured depository institution. Such expenses shall include pre-failure and post-failure obligations that the receiver determines are necessary and appropriate to facilitate the smooth and orderly liquidation or other resolution of the institution.


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11 U.S.C. § 365: Executory contracts and unexpired leases (a) Except as provided in sections 765 and 766 of this title and in subsections (b), (c), and (d) of this section, the trustee, subject to the court’s approval, may assume or reject any executory contract or unexpired lease of the debtor. (b)

(1) If there has been a default in an executory contract or unexpired lease of the debtor, the trustee may not assume such contract or lease unless, at the time of assumption of such contract or lease, the trustee—

(A) cures, or provides adequate assurance that the trustee will promptly cure, such default other than a default that is a breach of a provision relating to the satisfaction of any provision (other than a penalty rate or penalty provision) relating to a default arising from any failure to perform nonmonetary obligations under an unexpired lease of real property, if it is impossible for the trustee to cure such default by performing nonmonetary acts at and after the time of assumption, except that if such default arises from a failure to operate in accordance with a nonresidential real property lease, then such default shall be cured by performance at and after the time of assumption in accordance with such lease, and pecuniary losses resulting from such default shall be compensated in accordance with the provisions of this paragraph; (B) compensates, or provides adequate assurance that the trustee will promptly compensate, a party other than the debtor to such contract or lease, for any actual pecuniary loss to such party resulting from such default; and (C) provides adequate assurance of future performance under such contract or lease.

(2) Paragraph (1) of this subsection does not apply to a default that is a breach of a provision relating to—

(A) the insolvency or financial condition of the debtor at any time before the closing of the case; (B) the commencement of a case under this title;


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(C) the appointment of or taking possession by a trustee in a case under this title or a custodian before such commencement; or (D) the satisfaction of any penalty rate or penalty provision relating to a default arising from any failure by the debtor to perform nonmonetary obligations under the executory contract or unexpired lease.

(c) The trustee may not assume or assign any executory contract or unexpired lease of the debtor, whether or not such contract or lease prohibits or restricts assignment of rights or delegation of duties, if—

(1)

(A) applicable law excuses a party, other than the debtor, to such contract or lease from accepting performance from or rendering performance to an entity other than the debtor or the debtor in possession, whether or not such contract or lease prohibits or restricts assignment of rights or delegation of duties; and (B) such party does not consent to such assumption or assignment; or

(2) such contract is a contract to make a loan, or extend other debt financing or financial accommodations, to or for the benefit of the debtor, or to issue a security of the debtor; or (3) such lease is of nonresidential real property and has been terminated under applicable nonbankruptcy law prior to the order for relief.

(d)

(1) In a case under chapter 7 of this title, if the trustee does not assume or reject an executory contract or unexpired lease of residential real property or of personal property of the debtor within 60 days after the order for relief, or within such additional time as the court, for cause, within such 60-day period, fixes, then such contract or lease is deemed rejected. (2) In a case under chapter 9, 11, 12, or 13 of this title, the trustee may assume or reject an executory contract or unexpired lease of residential real property or of personal property of the debtor at any time before the confirmation of a plan but the court, on the request of any party to such


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contract or lease, may order the trustee to determine within a specified period of time whether to assume or reject such contract or lease. (3) The trustee shall timely perform all the obligations of the debtor, except those specified in section 365 (b)(2), arising from and after the order for relief under any unexpired lease of nonresidential real property, until such lease is assumed or rejected, notwithstanding section 503 (b)(1) of this title. The court may extend, for cause, the time for performance of any such obligation that arises within 60 days after the date of the order for relief, but the time for performance shall not be extended beyond such 60-day period. This subsection shall not be deemed to affect the trustee’s obligations under the provisions of subsection (b) or (f) of this section. Acceptance of any such performance does not constitute waiver or relinquishment of the lessor’s rights under such lease or under this title. (4)

(A) Subject to subparagraph (B), an unexpired lease of nonresidential real property under which the debtor is the lessee shall be deemed rejected, and the trustee shall immediately surrender that nonresidential real property to the lessor, if the trustee does not assume or reject the unexpired lease by the earlier of—

(i) the date that is 120 days after the date of the order for relief; or (ii) the date of the entry of an order confirming a plan.

(B)

(i) The court may extend the period determined under subparagraph (A), prior to the expiration of the 120-day period, for 90 days on the motion of the trustee or lessor for cause. (ii) If the court grants an extension under clause (i), the court may grant a subsequent extension only upon prior written consent of the lessor in each instance.

(5) The trustee shall timely perform all of the obligations of the debtor, except those specified in section 365 (b)(2), first arising from or after 60 days after the order for relief in a case under chapter 11 of this title under an unexpired lease of personal property (other than personal property leased to


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an individual primarily for personal, family, or household purposes), until such lease is assumed or rejected notwithstanding section 503 (b)(1) of this title, unless the court, after notice and a hearing and based on the equities of the case, orders otherwise with respect to the obligations or timely performance thereof. This subsection shall not be deemed to affect the trustee’s obligations under the provisions of subsection (b) or (f). Acceptance of any such performance does not constitute waiver or relinquishment of the lessor’s rights under such lease or under this title.

(e)

(1) Notwithstanding a provision in an executory contract or unexpired lease, or in applicable law, an executory contract or unexpired lease of the debtor may not be terminated or modified, and any right or obligation under such contract or lease may not be terminated or modified, at any time after the commencement of the case solely because of a provision in such contract or lease that is conditioned on—

(A) the insolvency or financial condition of the debtor at any time before the closing of the case; (B) the commencement of a case under this title; or (C) the appointment of or taking possession by a trustee in a case under this title or a custodian before such commencement.

(2) Paragraph (1) of this subsection does not apply to an executory contract or unexpired lease of the debtor, whether or not such contract or lease prohibits or restricts assignment of rights or delegation of duties, if—

(A)

(i) applicable law excuses a party, other than the debtor, to such contract or lease from accepting performance from or rendering performance to the trustee or to an assignee of such contract or lease, whether or not such contract or lease prohibits or restricts assignment of rights or delegation of duties; and (ii) such party does not consent to such assumption or assignment; or


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(B) such contract is a contract to make a loan, or extend other debt financing or financial accommodations, to or for the benefit of the debtor, or to issue a security of the debtor.

(f) (1) Except as provided in subsections (b) and (c) of this section, notwithstanding a provision in an executory contract or unexpired lease of the debtor, or in applicable law, that prohibits, restricts, or conditions the assignment of such contract or lease, the trustee may assign such contract or lease under paragraph (2) of this subsection. (2) The trustee may assign an executory contract or unexpired lease of the debtor only if—

(A) the trustee assumes such contract or lease in accordance with the provisions of this section; and (B) adequate assurance of future performance by the assignee of such contract or lease is provided, whether or not there has been a default in such contract or lease.

(3) Notwithstanding a provision in an executory contract or unexpired lease of the debtor, or in applicable law that terminates or modifies, or permits a party other than the debtor to terminate or modify, such contract or lease or a right or obligation under such contract or lease on account of an assignment of such contract or lease, such contract, lease, right, or obligation may not be terminated or modified under such provision because of the assumption or assignment of such contract or lease by the trustee.

(g) Except as provided in subsections (h)(2) and (i)(2) of this section, the rejection of an executory contract or unexpired lease of the debtor constitutes a breach of such contract or lease—

(1) if such contract or lease has not been assumed under this section or under a plan confirmed under chapter 9, 11, 12, or 13 of this title, immediately before the date of the filing of the petition; or (2) if such contract or lease has been assumed under this section or under a plan confirmed under chapter 9, 11, 12, or 13 of this title—


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(A) if before such rejection the case has not been converted under section 1112, 1208, or 1307 of this title, at the time of such rejection; or (B) if before such rejection the case has been converted under section 1112, 1208, or 1307 of this title—

(i) immediately before the date of such conversion, if such contract or lease was assumed before such conversion; or (ii) at the time of such rejection, if such contract or lease was assumed after such conversion.

(k) Assignment by the trustee to an entity of a contract or lease assumed under this section relieves the trustee and the estate from any liability for any breach of such contract or lease occurring after such assignment. (o) In a case under chapter 11 of this title, the trustee shall be deemed to have assumed (consistent with the debtor’s other obligations under section 507), and shall immediately cure any deficit under, any commitment by the debtor to a Federal depository institutions regulatory agency (or predecessor to such agency) to maintain the capital of an insured depository institution, and any claim for a subsequent breach of the obligations thereunder shall be entitled to priority under section 507. This subsection shall not extend any commitment that would otherwise be terminated by any act of such an agency.


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CERTIFICATE OF SERVICE

I hereby certify that on this 4th day of June, 2012, I electronically filed the

foregoing Brief for Appellant with the Clerk of the Court for the United States

Court of Appeals for the D.C. Circuit by using the appellate CM/ECF system.

Service was accomplished on the following persons on this 4th day of June,

2012, by electronically filing the foregoing Brief for Appellant with the Clerk of

the Court for the United States Court of Appeals for the D.C. Circuit by using the

appellate CM/ECF system:

J. Scott Watson Federal Deposit Insurance Corporation Appellate Litigation Unit 3501 N. Fairfax Drive Arlington, VA 22226 Mr. Thomas Ludwig Holzman, Esq. Federal Deposit Insurance Corporation (FDIC) Legal Division 3501 Fairfax Drive Arlington, VA 22226-3500 Mr. Daniel Harold Kurtenbach, Esq. Federal Deposit Insurance Corporation (FDIC) Legal Division Room 2152-C 3501 Fairfax Drive Arlington, VA 22226-3500

[s] Howard R. Hawkins, Jr. Howard R. Hawkins, Jr.


Documents

UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA